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MEXICOin a Mirror
International Lessons for the Consolidation of the New Mexican Energy Model
The Mexican Council on Foreign Relations (COMEXI) is a non-
profit civil organization dedicated to the study, analysis, and dialogue on
international relations. Its objective is to generate proposals that contribute
to the decision-making processes and have an impact on the definition
and implementation of public policies that affect Mexico. Moreover, it
aims to play a part in Mexico’s positioning and its impact on the rest of the
world. COMEXI also counts on the participation of different Embassies,
international organizations and research centers dedicated to the study of
the country’s political, social and financial scene.
Sierra Mojada 620–502Lomas de ChapultepecCiudad de México, C.P. 11000
T. (55) 5202 [email protected]
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NTable of Contents
Presentation
Executive Summary
Introduction
The World in a Mirror
Mexico in a Mirror
Steadily Moving Forward
Final Considerations
Who We Are
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The Mexican Council on Foreign Relations (COMEXI), through its Energy Work Group, presents an analysis and a set of recommendations to guarantee the continuity of the Energy Reform, implemented in 2013.
The Energy Work Group (GTE in Spanish) is a CO-MEXI-driven initiative that emerged in response to the need of addressing the challenges the energy sector has brought about for Mexico in the last years; it seeks to seize the chance to turn the country into a driver of development for all Mexicans. To this end, several experts, key players and leaders of energy com-panies in our country have joined forces to compile the best international practices in the field to have a positive impact on the strengthening of the energy market.
Throughout its existence, the GTE has issued several rec-ommendations concerning the instrumentation, implementa-tion and effective date of the Energy Reform. These recom-mendations can be consulted on COMEXI’s official website. Also, many of them have been encompassed in the laws passed for the energy-market opening in Mexico. Hence, in this new release, we wish to contribute to guaranteeing the permanence of the Reform in the light of the unforeseeable circumstances we are currently undergoing, from the political ups and downs in Mexico to the renegotiation and future of NAFTA.
This proposal summarizes some of the different alternatives Mexico could adopt to achieve this objective. Furthermore, it compares success stories in other regions of the world to shed light on the ups and downs of other country’s experiences and traces clear routes towards implementation.
GTE will continue combining forces to contribute to the sector’s development and to consolidate our country as a com-petitive and relevant energy player.
ANDRES ROZENTAL / Coordinator
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Executive Summary
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Every time Mexico has taken a look at the rest of the world to learn from it and its generations, it has had the privilege of ex-periencing unprecedented global integration: all of a sudden, news start flowing and decisions made in different corners of the world seem close and intimate. Our generation has had a historical mission, which has consisted in rethinking the con-servative ideals and transforming the energy inertia into some-thing different in order to take over the construction of a future that aligns to our current reality.
For decades, Mexico held several discussions on what to do about energy, but little changed. The numbers, however were clear: in less than a decade, the country’s oil production plum-meted by more than one million daily barrels; electric power rates got increasingly higher in comparison to our regional part-ners; and the subsidy framework caused retrogressive effects, leading to a confusion around the true social purpose of public resources.
The Mexican Energy Model set forth by the 2013 Reform is the legacy of a generation that decided to confront inertia and imagine a different future. Its development was based on three main aspects: 1) the national challenges the sector was facing after years and years of decision deferment; 2) the lessons the world offered to build a comprehensive model that complied with the best international practices; 3) the customization of these global lessons to our own institutional and legal frame-works.
To this day, the result has been undoubtedly positive: Just a few years after the model’s creation, a reliable and professional institutional architecture has been created; the elimination of monopolies has had a positive impact on public companies and is attracting players from all over the world; the government’s risk-free investments are paying off like never before and the
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great variety of supply is starting to show signs of healthy com-petition.
In order to continue moving forward, we need to continue looking at the rest of the world. Countries such as Norway have destined their oil revenues to the creation of an unparalleled long-term savings fund; Saudi Arabia is applying more finan-cial-oriented techniques in its flagship company, while spark-ing off investments on renewable energies; Venezuela has got caught in an aimlessly ideology; and Brazil and Argentina have stumbled despite their wealth, and are just starting to get back on their feet with encouraging results. All these experiences teach us what to do and what not to do.
These kinds of lessons are useful for imagining future sce-narios. Despite the progress made, however, we need to keep in mind that there is still much to be done, like continuing the path towards institutional strength, transparency and competi-tion; and reviewing the pending administrative frameworks to close the existing discretion gaps. Hence, this is a good time for Mexico to look in the mirror.
Today, the world offers a proven path to continuing moving forward; therefore we must:
• Exercise the energy project with discipline, always prioritizing transparency, competition and legality.• Think of energy as a source of long-term financial and resource competitiveness, not only as a short-term source of profit.• Strengthen the institutional platforms to build confidence in capitals.• Have a flexible and adaptable stance in the face of an energy world that is rapidly and constantly changing.
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Introduction
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In 2013, Mexico started a new chapter in its history: it modified the Constitution to define the New Mexican Energy Model. This decision resulted from more than two decades of pub-lic debate on how to rethink the traditional model so that our country could find its place in the world. Mexico realized it was exhausted; it had gotten lost in aimless energy paths that had weakened its energy security and taken it further away from competitiveness and prosperity.
When looking in the mirror, Mexico knew it was high time we started doing things differ-ently, without leaving room for postponing decisions. Mexico needed to assume its position as an avant-garde country urgently. Change was inevitable and it required the country to become a key player in the great global energy transformation.
This sense of urgency emerged from three main factors:
1. A Worn-out Energy Policy Understood as a Closed Model
For decades, the model was based on a series of premises that over time became insufficient to keep up with an open economy, face the global energy revolution, guarantee the country’s energy security and, ultimately, enhance its economic competitiveness to achieve social de-velopment and welfare.
Some of the outdated closed-model premises were: 1) The State and its companies were in charge of everything and they did not get any support from private companies; 2) all risks related to hydrocarbon exploration and exploitation, and electric power transmission and dis-tribution were assumed by the State; hence, society carried this burden as taxes were destined to this purpose; 3) private capital investments were limited to marginal participation in some services, imports and credit products; 4) oil revenues were mainly destined to cover structural deficiencies in public finances; hence, the main focus was current expenditure, not long-term savings; 5) energy consumables were valuated based on administrative considerations – or even regressive subsidies – that did not reflect the conditions of the free international market.
In spite of the early warnings of a deficient model, Mexico postponed the decision to mod-ernize its energy model. The consequences were clear:
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ION • In the decade prior to the reform, oil production dropped by approximately one
million daily barrels, and oil profits – as a total percentage of the federal income – shrunk considerably;• The oil reserve replacement rate systematically dropped.• Electric power costs went up above the regional average and the transmission and distribution network faced increasing losses.• Public investments for state-owned companies were constantly reduced, decreasing production and increasing debt.
It is true that part if the above was exacerbated by the international pricing circumstances; however, the severity of the situation lied in the fact that instead of being a development pillar, the energy sector had become a burden for our economy’s competitiveness and a corrosion factor for public trust.
2. The Global Transformation of the Energy Map
While Mexico kept postponing change and remained caught in stagnation, the world was rapidly transforming. Change was so accelerated that in just one decade, the global energy map was altered. Other countries advanced on the development of more complex extraction technologies and competition allowed the fluctuation of competitive prices.
This immediate context is of vital importance. Mexico needs to bear in mind that the US catapulted its energy production capacity and rose as a new supply epicenter thanks to its open model, while global demand Asia-Pacific was reconfigured. At the same time, several traditional producers designed sophisticated financial systems to manage oil revenues, which led to their amassing of great fortunes.
Moreover, the transformation of the energy map has been globally impacted by the stagger-ing speed of energy efficiency and the decrease of renewable energy costs.
3. The Internal Contradictions of Pursuing Global Competitiveness through Outdated and Insufficient Tools
For years, the Mexican economy moved towards modernization by opening its economy; nonetheless, it was ruled by a tight control model that was not in tune with the needs of the globalized industry. So in a nutshell, Mexico could not afford to start the 21st century with an energy model developed in the middle of the last century.
The image in the mirror was that of a country with outdated tools for building a new con-temporary project. In other words, the country was expecting to get different results by sticking to the same old practices. The most sensible thing to do then was to do things differently, giv-ing energy a proper place in the construction of a Contemporary Mexico. With this in mind, the New Mexican Energy Model was consolidated. This model resulted from a collective decision based on the urgency to rely on adequate institutions and instruments to leverage competitive development, efficient governance, competitive market, and healthy growth.
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IONThe Model came into existence thanks to the cooperation of different actors that shared the
vision that Mexico could tangibly benefit from its huge energy potential. Moreover, the Mod-el stands out because of its transversality and its quick and unprecedented implementation, which has accelerated progress after years of backwardness. Its greatest achievement has been providing certainty through laws and institutions that allow having an energy policy focused on the development and welfare of all citizens.
This new model stands for:• The reaffirmation of the country’s ownership of underground hydrocarbons. Hydrocarbons have always belonged to all Mexicans.• The Government’s authority over the implementation of an energy policy, applied through a deep institutional reengineering based on weights and counterweights. • The end of the monopoly exerted by state companies and the creation of an energy market where the public and private sectors openly intersect, collaborate and compete.• The transition of Pemex and CFE from self-regulated public entities to State-owned Production Companies with sophisticated instruments that will make them profitable and capable of competing or associating with new players.• The incorporation of mechanisms for guaranteeing transparency, legal certainty and the strengthening of Rule of Law.
The first results of the Model prove that the country is going in the right direction: the seven bidding processes held so far for the hydrocarbon rounds have achieved an award rate of 74% and the signing of 70 new agreements, which together could add up to investments of 59 billion dollars in the medium term; that is, if all projects were commercially successful. Out of these projects, the State will get 70% of profit in average, without having risked public resources or increased its public debt to finance them. The news for the rest of the hydrocar-bon chain of value are no less exciting. For instance, the investment in fuel and diesel markets – more gas stations, storage, railway transportation and oil pipes – is expected to be 16,223 million dollars. This figure does not take into consideration the productivity profits derived from the reduction of wait times in –today saturated – gas stations, or the environmental and financial benefits of having gas with additives that help reduce emissions and improve the vehicles’ energy efficiency.
Electric power is also moving forward. The wholesale electric power market has welcomed 28 new stakeholders. This has led to a competitive and fair space with clear rules for the generation and supply of electric power. This change in the industry has translated into the reduction of entry barriers and has fostered an open access to networks. As for clean energy sources, the two bidding processes carried out to the day account for investments of 6,600 mil-lion dollars. By 2019, these investments will have impacted have of the states in the country, with 52 new generation plants.
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Source: SENERIMAGE: 197 Contracts – 124 Companies - $80.105 million dollars (estimated investment)Considering the different hydrocarbon exploration and extraction areas, seismic areas, oil pipes and electric power.
With its response flexibility, the Model offers Mexico a wide array of tools for meeting many of its international commitments; for instance the actions agreed in the United Na-tions Climate Change Conference (COP21). Furthermore, it enables the achievement of the ambitious environmental goals set forth by the country itself, such as the 22% reduction of greenhouse gas emissions and 51% reduction of black carbon emissions by 2030.
These results are not coincidental. They are anchored in three fundamental principles: discipline in the execution of rules and programs; transparency in all bidding processes to guarantee fair conditions for all players; and encouragement of competence without special privileges for certain actors or artificial entry barriers.
Moving in the right direction not only requires adherence to these principles, but also the internalization of the dynamism that constantly transforms the energy sector. In a world in which the main constant is change and the accelerated technological developments become more and more disruptive, having agile, flexible and transparent energy policy tools based on innovation and knowledge is certainly a strength.
As other international experiences have shown us, energy models are dynamic, not static. They adapt to technology advancements and the available resources. At their best, they allow strengthening the national energy security and generating intergenerational wealth. However, these models can also move towards less favorable scenarios, particularly when poor political or management decisions are made or when certain spaces are destined to benefit only a selected few, in detriment of the rest.
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ferrocarrilypoliductos.Estosincuantificarlasgananciasenproductividadderivadasdereducirlos
tiemposdeesperaenlasgasolineras,hoysaturadas,olosbeneficiosambientalesyeconómicosde
contarcongasolinasqueahoracomienzanacontarconaditivosqueayudanareduciremisiones
ymejorarlaeficienciaenergéticadelosvehículos.
Laelectricidadtambiénavanza.AlMercadoEléctricoMayoristasehanincorporado28nuevos
participantes,generandoysuministrandoenergíaenunespaciodecompetenciaconreglasclaras
ypisoparejo.Estecambioenlaindustriahasignificadolareduccióndelasbarrerasdeentraday
potenciadoelaccesoabiertoaredes.Enelladodelasenergíaslimpias,lasdossubastasrealizadas
hastahoyanuncianinversionesporalrededorde6600millonesdedólaresque,para2019,im-
pactaránenlamitaddelosestadosdelpaíscon52centralesdegeneración.
ElModelo,consuflexibilidadderespuesta,danumerosasherramientasalpaísparacumplir
muchosdesuscompromisosinternacionalescomo,porejemplo,lasaccionescomprometidaspor
elgobiernomexicanoenlaConferenciadelasPartesparaelCambioClimático(COP21).Además,
permitelaposibilidaddealcanzarlasambiciosasmetasambientalesqueelpaíssehapropuesto,
comolareducciónenun22%delasemisionesdegasesdeefectoinvernaderoyen51%delas
emisionesdecarbononegro,ambaspara2030.
Estosresultadosnosonproductodelacasualidad.Estánancladosentresprincipiosfundamen-
tales:ladisciplinaenlaejecucióndelasreglasyprogramas,latransparenciaenlosprocesosde
subastasylicitacionesconcertezasobrepisoparejoparalosjugadores,yelfomentoalacompetenciasin
privilegiaraactoralgunoomediantebarrerasdeentradaartificiales.
Irenladireccióncorrectanosoloimplicamantenerestosprincipios,sinotambiéninternalizar
eldinamismoqueconstantementetransformaalsectorenergético.Enunmundodondelaprincipal
Considerando las áreas de exploración y extracción de hidrocarburos, sísmica, gasoductos y electricidad.
fuente: SENER.
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ION This document aims to place Mexico before the mirror and before the rest of the
world. It reflects on the paths that other countries have taken to consolidate their own energy models, with all their ups and downs. Moreover, it highlights the advances achieved by the model so far and analyzes possible additional steps to consolidate Mexico as an energy power.
Throughout its history, Mexico has become stronger after taking a look at the rest of the world. Our democracy, freedom and justice ideas were inspired in other annals of human-ity; our culture is a melting pot that transforms the ideas of others and makes the feelings of our nation universal. Our economy has always improved and become more just when we look to the outside, not when we turn our backs to the rest of the world. Today, we can continue building a better future if we take a look at the world to learn from it and adapt it to benefit our generation and the ones to come.
The World in a Mirror
The World in a Mirror
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The Energy Revolution
By the end of the last century, the expectations and future of hydrocarbons were far from encouraging. Many believed that production was about to reach its peak and from then on, the availability of resources would be limited, with nothing else to discover. The Peak Oil theories predicted a constant production decline, so a world without oil would become an unavoidable reality in the short term.
Several decades later, technological advances overthrew those prophecies and came up with a new global energy stage1. As it turned out, the Peak Oil theory and other related fore-casts were conceptually flawed, as they overlooked technological innovations as a means for building the future. The discovery of new oil reserves and the access to new non-conventional oil and gas resources modified the global energy supply centers, namely in North America2. Meanwhile, Asia-Pacific reconfigured the global demand trends. As the Mexican Institute for Competitiveness (IMCO) cleverly put it, “someone altered the map for us3”.
1. Cuaderno de Trabajo: México ante la Revolución Energética, COMEXI. Available at: http://www.consejomexicano.org/index.php?s=-contenido&id=10642. Nos cambiaron el mapa: México ante la revolución energética del siglo XXI, Instituto Mexicano de Competitividad (IMCO). Available at: http://imco.org.mx/ indices/documentos/2013_ICI_ResumenEjecutivo_Nos_cambiaron_el_mapa_Mexico_ante_la_revolucion_energeti-ca.pdf3. Idem.
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Source: Nos cambiaron el mapa: México ante la revolución energética del siglo XXI, IMCO.Image: CHANGES IN THE GLOBAL POSITION OF PROVED HYDROCARBON RESERVES BY REGION (2011)NORTH AMERICA – MEXICO - SOUTH AMERICA – EUROPE – AFRICA – MIDDLE EAST – EX-USSR – ASIA PACIFICConventional HydrocarbonsConventional Hydrocarbons + NON-conventional hydrocarbons
These changes did hot happen spontaneously; they were the outcome of a series of tech-nological advances under legal frameworks that allowed greater sophistication in the exploita-tion of resources. As a result, many countries that used to be large importers of global energy are now very well positioned, like the United States. Nonetheless, others have opted for an isolation policy that makes them vulnerable in the midst of global transformation.
On the other hand, because constant evolution is part of energy’s nature, we have gone from rudimentary sources to the most sophisticated technologies to make the most of resourc-es that highly difficult to extract. We simply cannot conceive human progress without the adoption of different and more efficient sources of energy.
Change, however occurs over a long period of time; sometimes it is even imperceptible, as the following chart shows. The chart below presents the global portfolio per source of energy since 1800. Changes are difficult to navigate when they are planned and decided in short hori-zons; for instance, in management. Having flexible models that gather all the available talent, that make the most of creativity and that allow taking chances without affecting the national
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15cambios en las posiciones mundiales de reservas probadas de hidrocarburos, por región (2011).
fuente: Nos cambiaron el mapa: México ante la revolución energética del siglo XXI, IMCO.
Hidrocarburos convencionalesHidrocarburos convencionales + Hidrocarburos NO convencionales
Loscambiosnoocurrieronespontáneamente,sinoquefueronconsecuenciadeunaseriede
avancestecnológicosbajomarcoslegalesquepermitieronunamayorsofisticaciónenlaexplota-
ciónderecursos.Estollevóaquepaísesquetradicionalmentehabíansidograndesimportadores
deenergíaglobalahoracuentenconunaposiciónenergéticarobustecida,porejemplo,Estados
Unidos.Otros,encambio,mantuvieronunapolíticadeaislamientoquevulnerasuposiciónfrente
alastransformacionesglobales.
Porotrolado,debidoaquelanaturalezamismadelaenergíaeslaconstanteevolución,hemos
transitadodesdelasfuentesmásrudimentariashastalamássofisticadatecnologíaparaaprovechar
recursosdeextracciónaltamentecomplejos.Nopodemosimaginarelprogresohumanosinla
adopcióndefuentescadavezmáseficientesydiversasdeenergía.
Loscambios,sinembargo,ocurrenencuentaslargas,imperceptiblesaveces,comoserefleja
enlasiguientegráfica,queseñalaelportafoliomundialporfuentedeenergíadesde1800.Son
difícilesdeorientarcuandoseplaneaysedecideenhorizontescortos,porejemplo,losdeuna
administración.Elcontarconmodelosflexibles,queconvocantodoeltalentoposible,queaprove-
chanlacreatividaddelosmásyquepermitencorrerriesgossinafectarlosinteresesnacionales,
sonfrecuentementemásexitososenlaadaptaciónyadelantoaloscambios.Estossonlosmodelos
quedanasuspaísesprofundasfortalezasantelasincertidumbresdelcambio.
NORTEAMÉRICA
MÉXICO
SUDAMÉRICA
EUROPA
ÁFRICA
MEDIO ORIENTE ASIA PACÍFICO
EX-URSS
3 1
2 5
6 7 1 3 4 2
5 4
7 6
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help countries develop solid strengths to face the uncertainties of change.
Source: Smil. Energy Transitions (1800-1960); (Energy Foresight).
Considering the changes displayed in the map, each country makes decisions based on its own circumstances and shapes is own flexibility and adaptability strategies. All countries, of course, aim to have greater energy availability, investments, capital, knowledge generation, technology development and capitalization of energy resources. Countries that serve as a benchmark of strength share certain common traits, such as the institutionalization of energy as leverage for intergenerational development, and competence instruments guaranteed by Rule of Law. Likewise, countries that have been less fortunate share common features as well; for instance, legal uncertainty, short-term aspirations, and political use of energy resources.
The following sections tell the story of five countries that made decisions around their energy models. Some of them shed light on the alternatives that Mexico could embrace to strengthen the new Model derived from the Energy Reform. Others, point out the risks of going back to old, worn out formulas.
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fuente: Smil. Energy Transitions (1800-1960); (Prospectiva Energética).
global percent mix of fuels.
Frentealoscambiosenelmapa,cadapaístomasusdecisionesconbaseensuscircunstancias,
inyectandosuspropiasestrategiasdeadaptaciónyflexibilidad.Todoslohacenconlaintención
decontarconmayordisponibilidaddeenergía,inversiones,capital,generaciónyretenciónde
conocimiento,desarrollodetecnologíaymejorusodelacapitalizacióndelosrecursosenergéticos.
Aquellospaísesquehanimpartidoleccionesdefortalecimientocompartencaracterísticascomu-
nes:lainstitucionalizacióndelaenergíacomopalancadedesarrollointergeneracionalacompañada
deinstrumentosdecompetenciagarantizadosporunEstadodeDerecho.Encambio,caminos
menosafortunadosconvergenencaracterísticastambiénsimilares:incertidumbrelegal,aspiraciones
cortoplacistasyelusopolíticodelosenergéticos.
Lossiguientesapartadoscuentanlahistoriadecincopaísesquetomarondecisionesconres-
pectoasusmodelosdeenergía.AlgunosarrojanpistassobrealternativasqueMéxicopuedetomar
parafortalecerelnuevoModelonacidodelaReformaEnergética;otrosseñalanlosriesgosde
regresarafórmulasagotadas.
100
80
60
40
20
01800 1850 1900 1950 2000 2010
HYDRO
GAS
OIL
COAL
BLOMASS
OTHERRENEWABLES
NUCLEAR
PERCENT
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Norway
The golden age of Norwegian oil began in the middle of the 1960’s and continues to this day. It all started when the Phillips Petroleum Company requested the Norwegian govern-ment approval for exploring territories in the North Sea. Back then, the Norwegian govern-ment did not hesitate to grant permit in exchange for 160,000 dollars a month as an escrow agreement that would guaranty the exclusive use of those territories. The prerogative was that any discovery would belong to the State.
During the opening decade, several big events took place:• April 13th 1965 – the first Norwegian bidding was held. Through this bidding process, the government issued 22 permits to explore, drill and produce gas and oil in designated areas.• In 19694, Phillips Company notified the discovery of Ekofisk in the North Sea, an offshore field that ended up becoming one of the largest deposits of all times.5
The evolution of the industry has allowed having a sustained hydrocarbon production –as observed in the graph below – despite the decline of the largest fields, but thanks to the dis-covery of numerous smaller deposits.
Source: Norsk Petroleum.IMAGE: RESOURCES ACCRUED IN THE NORWEGIAN CONTINENTAL SHELF, 1966 – 2016RESOURCES ACCRUED, MILIONS OF SM3 O.EAround 1,060 wildcat wells
4. Norway’s Petroleum History. Available at: http://www.norskpetroleum.no/en/framework/norways-petroleum-history/5. Idem
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4. Norway’s Petroleum History. Disponible en: http://www.norskpetroleum.no/en/framework/norways-petroleum-history/
5. Ídem.
Noruega
Laeradoradadelpetróleonoruegocomenzóamediadosdeladécadade1960ycontinúaenla
actualidad.IniciócuandolaempresaPhillipsPetroleumsolicitóalgobiernonoruegounpermiso
paralaexploracióndelosterritoriosdelMardelNorte.Ensumomento,elgobiernonoruegonotuvo
ningunadudaenotorgardichopermiso,acambiode160000dólaresalmescomopagodega-
rantíaparaelusoexclusivodelterritorio;peroconunaprerrogativaqueestablecíaquecualquier
descubrimientoperteneceríaalEstado.
Enlaprimeradécadadeaperturaocurrieronimportantesacontecimientos:
•El13deabrilde1965,sellevóacabolaprimeralicitaciónnoruega.Enella,elgobiernootorgó
22permisosparaexplorar,perforaryproducirgas,yaceiteenlasáreasasignadas.
•En19694,laempresaPhillipsinformóeldescubrimientodeEkofisk,enelMardelNorte,un
yacimientocostaafueraqueseconvirtióenunodelosmásgrandesdetodoslostiempos.5
Laevolucióndelaindustriahapermitidoque—apesardeladeclinacióndeproduccióndesus
grandesyacimientosygraciasaldescubrimientodenuevosyacimientosmáspequeños,peroenmayor
cantidad—laproduccióndehidrocarburosseasostenida,talcomoseobservaenlasiguientegráfica.
fuente: Norsk Petroleum.
recursos acumulados en la placa continental noruega, 1966-2016.
12,000
10,000
8,000
6,000
4,000
2,000
1966 1980 1990 2000 2010 2016
REC
UR
SOS
AC
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ULA
DO
S, M
ILLO
NES
DE
SM3
O.E
.
+100%+200%
JOHAN SVERDRUP
ORMEN LANGE
TROLL ØST
STATFJORD
EKOFISK
7121/4-I SNØHVIT
Alrededor de 1 060 wildcat well
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ORNorway is then an interesting example of how to make the most of market strength to de-
velop smaller resources and avoid accelerated production declines after the largest wells are depleted.
Norwegian economic growth was quite relevant during the latter half of the last century. In 1970, Norway’s Gross Domestic Product (GDP) was only 12,814 million dollars, while in 2016 it was 370,578 million dollars6.This means the country multiplied its GDP by 30 in little less than 50 years.
Although at the beginning production in Norwegian seas was dominated by foreign com-panies, state-owned companies Norsk Hydro and Statoil started getting involved little by little. At the same time, other private-investment Norwegian companies were created; for instance, Saga Petroleum. These companies partnered right away to help state companies learn differ-ent techniques, obtain knowledge and acquire experience from their partners. Moreover, they shared risks and increased their opportunities for success. Nowadays, Statoil has presence in 30 countries and it has diversified its profile: 38% of its hydrocarbon production comes from outside of Norway7. Today, Statoil is a successful company in its own right, not imposed by law.
In 1985, the system evolved and was divided into two: one part was assigned to Statoil and the other to an allocation system with state participation. This second system allowed private companies to produce so long as the profits were shared with the State. The government’s profit was determined during the bidding processes for these blocks. Norway proved to be cau-tious and creative in its way of managing its new oil profits. The country understood that the great value of oil was an opportunity that would never come back; but well managed, it could become a permanent advantage; hence, it created a sovereign wealth fund for long-term sav-ings. Likewise, it decided to destine only a small fraction for the government’s expense needs back then.
According to 2016 data, its value is 7,475 millions Norwegian Crowns, equivalent to 1 tril-lion dollars8 — nearly 116% of Apple’s value. It goes without saying that it is one of the largest in the world9. This sum is so impressive that American-Russian writer Gary Shteyngart dared to imagine a future controlled by the Chinese government with the Norwegian Sovereign Fund10. Of course, reality is ever more complex and interesting than fiction, and Norway’s cre-ativity resides in the acknowledgement that oil profits – being property of the nation – should not only benefit its current citizens, but also the generations to come. This intergenerational approach had never been seen before, so it is one of Norway’s greatest contributions to hu-manity.
6. World Bank Information on Norway. Available at: http://data.worldbank.org/country/norway7. Statoil Annual Report 2016. Available at: https://www.statoil.com/content/dam/statoil/documents/annual-reports/2016/statoil-2016-annu-al-report.pdf8. Norway Bank, Market Value. Available at: https://www.nbim.no/en/the-fund/market-value/9. Norway Bank, Annual Report 2016. Available at: https://www.nbim.no/contentassets/41460fa6a42b4bd4a758429b90f80da2/govern-ment-pension- fund-global---annual-report-2016.pdf10. Shteyngart, Gary, Super Sad Love Story, Random House, 2010.
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Source: Norwegian Petroleum.IMAGE: GOVERNMENT GLOBAL PENSION FUND: MARKET VALUE 1996-2018Fund Value (million Norway crown)
Norwegian GDP Value
Norway’s experience teaches us valuable lessons: With the proper knowledge and technol-ogies, state-owned companies have the ability to become international players; having clear rules that are executed with discipline is key for attracting competence and talent (the founda-tion for a competitive hydrocarbon market); national wealth can go beyond time to generate intergenerational benefits.
Saudi Arabia
One of the most emblematic examples of successful state companies is Saudi Aramco, which holds a dominant position in the Saudi market chain of value. This is the largest hy-drocarbon producing company in the world. This is partly due to the vast Saudi reserves – the second largest in the world, only after Venezuela – and thanks to the fact that Saudi Arabia has the lowest production costs in the world. Its production adds up to approximately 10.5 millions of crude oil barrels a day, that is, 5 times Pemex production and even a lot more than other international giants such as ExxonMobil, Shell or Total.
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fuente: Norwegian Petroleum.
valor de mercado del fondo global de pensión gubernamental, 1996-2016.
Laexperiencianoruegaarrojaaprendizajesimportantes:lasempresasdelEstadosoncapacesde
convertirseenjugadoresanivelinternacionalmediantelatransferenciadeconocimientoytecno-
logía;laclaridaddelasreglasyladisciplinaensuejecuciónsonlaclaveparaatraercompetenciay
talentodetodoelorbe(labasedeunmercadodehidrocarburoscompetitivo);ylariquezanacional
puedetraspasarlasfronterasdelainmediatezparaconstruirbeneficiosintergeneracionales.
Arabia Saudí
UnodelosejemplosmásrepresentativosdeempresasestatalesexitosaseseldeSaudiAramco
quemantieneunaposicióndominanteentodalacadenadevalordelmercadosaudí.Estaem-
presaeslademayorproduccióndehidrocarburosdelmundo,enpartedebidoalasextensas
reservassaudíes—lassegundasmásgrandesdelmundo,solodespuésdeVenezuela—yen
granmedidagraciasaquetieneloscostosdeproducciónmásbajosdelmundo.Suproduc-
ciónaproximadaesde10.5millonesdebarrilesdepetróleocrudoaldía,estoes5vecesla
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
300
250
200
150
100
50
0
Valor del fondo (millardos de coronas noruegas) Valor del PIB noruego
POR CIENTO
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
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2016
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ORThanks to its privileged location, Saudi Arabia is not only a fundamental pillar of the Orga-
nization of the Petroleum Exporting Countries (OPEC), but has also become the guarantor of price stability in the past decades. Its flexibility allows the country to put up to two million daily barrels into the market. This dominance allows Saudi Arabia to project its influence not only at regional level, but also at international scale.
Despite its favorable context, the monarchy is well aware that this scenario is undergoing transformation. This can easily be noticed in the emergence of new leaderships within the royal family; the naming of Prince Mohammad bin Salman (MBS) as heir to the throne clearly represents a generational change. This action has led the conservative reign to rethink a future in which oil will not be the main source of income. Their ideal is to leave the idea that hydrocarbons are their only profit aside and, instead, turn it into a pillar for diversification and transformation.
To this day, Saudi Aramco’s income represents 90% of the total income of this Middle East giant; nonetheless, they understand that the world has changed and it will continue to change even faster. An example of this transformation is the emergence of non-conventional resources, namely gas and shale oil in the US. This has eroded the dominance granted by those two million barrels a day. Non-conventional resources are fighting for the leading role in the balance of supply and pricing, as they can also adapt quickly to fluctuating situations. What is more, natural gas, a transition fuel, has displaced petroleum as an energy source for the electric and industrial sectors. Lastly, the development of renewable energies poses one of the main threats to hydrocarbon dependency. Thanks to the increase of availability and magnitude, as well the decrease in renewable energy costs, the International Energy Agency (IEA) already envisages a world in which hydrocarbon demand will be considerably reduced.
This dynamic, particularly in terms of demand, has not gone unnoticed in the Saudi re-gime. That is why MBS has announced the Saudi Vision 2030, which considers the imple-mentation of a radical change to the economy. This plan lays down an aggressive and deep transformation agenda to reduce Saudi’s dependency on oil.
In essence, these changes involve going from a sophisticated extraction economy to a knowledge-based services economy. To that end – and anticipating a potentially long period of low oil prices – it has been suggested that Saudi Aramco could sell up to 5% of its shares in the capital markets. The valuation of 5% is equivalent to 100 billion dollars, which means that the total state oil valuation is two trillion dollars; that is, little more than Mexico’s GDP.
In tune with this modernizing and income-generating plan, Saudi Arabia has started an aggressive solar energy-based electric power generation program with a scheduled investment of up to 50 billion dollars11. The goal, according to the Energy Minister Khalid Al-Falih, is to supply at least 30% of the reign’s electric power with renewable energies and have 9.5 Gw of capacity installed. The other 70% will be generated in combined-cycle plants fed by natural gas. The objective of this monumental effort focused on renewable energies is aligned to the Saudi Vision 2030 and it intends to reduce consumption of fuel oil and diesel in its electric power generation plants so that crude oil can be mainly destined to exports and petrochemi-cals; in other words, those areas that generate more value.11. Bloomberg, Saudis Seek Up to $50 Billion in Renewable-Energy Expansion. Available at: https://www.bloomberg.com/news/arti-cles/2017-01-16/saudis-seek- up-to-50-billion-for-first-phase-of-renewables-plan
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OR In October this year, Saudi Arabia offered a first glimpse to these solar efforts. During a bid,
it received the lowest (solar) electric power generation offers in history worldwide.12 It even displaced the offers that Mexico received during its two first electric power auctions.13
Saudi Aramco’s entry to capital markets is scheduled for 2018 or beginning of 2019; how-ever, due to the huge size of this emission, several steps are required. First and foremost, it is necessary to make the corporate structure transparent. Up to now, the corporation responded more to political and social considerations than to the inherent efficiency needs of a company. This openness process will also offer a better understanding of the decision-making process inside a company that was not exactly known for its transparency. Likewise, it will be necessary to conduct an outsourced assessment of its reserves, as all the information available comes from the company itself.
It is clear that the Saudi royal family leaders have borrowed Norway’s lesson in terms of how to manage wealth generated by natural resources. Moreover, their plan incorporates similar concepts developed by some of their neighbors in the Persian Gulf, specifically United Arab Emirates and Qatar. Innovation, however, resides in the issuance of shares to finance Vision 2030 and make their flagship state company more transparent and efficient without losing sight of the biggest decisions.
This will allow Saudi Arabia to turn its Public Investment Fund (PIF) into one of the larg-est funds in the world. This PIF already handles assets of more than 183 billion dollars only in Saudi Arabia – while its other fund, the Saudi Arabian Monetary Authority (SAMA) Foreign Holdings, handles assets of more than 514 billion dollars and has equity interest in foreign companies such as Uber or POSCO, a South Korean engineering conglomerate. So as it has been pointed out before, this market entry constitutes a titanic transparency and accountabil-ity effort, as the interests of minority shareholders are duly represented.
12. Bloomberg, Saudi Arabia Gets Cheapest Bids for Solar Power in Auction. Available at: https://www.bloomberg.com/news/arti-cles/2017-10-03/saudi-arabia- gets-cheapest-ever-bids-for-solar-power-in-auction13. CENACE, Con precios altamente competitivos se anuncian los resultados preliminares de Subasta de Largo Plazo 2016. Available at: https://www.gob.mx/ cenace/prensa/con-precios-altamente-competitivos-se-anuncian-los-resultados-preliminares-de-subasta-de-largo-pla-zo-2016
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In the 1950s and 1960s, Brazil had an incipient oil industry. However, in the face of chal-lenges, the country bet on the knowledge that Pemex and the Mexican Institute of Petro-leum were applying to develop offshore resources. In 1953 Petroleo Brasileño S.A. (Petrobras) was created, monopolizing all the hydrocarbon activities. In 1986, the country initiated its offshore prospective activities, which 30 years later would translate into Brazil’s petroleum self-sufficiency and the possibility of becoming one of the most important producers world-wide. Following in the footsteps of Mexico, Brazilian engineers were sent to the best schools and institutes in the world to learn the best practices and acquire detailed knowledge.
Petrobras learned a lot. The bet paid off; however, in the global context they remained rather discreet. Nonetheless, in 1995 former president Fernando Henrique Cardoso, one of the most emblematic thinkers of the Latin American left, promoted comprehensive reforms in the Brazilian oil sector. Cardoso doubled the bet on talent, so the knowledge developed by Petrobras and the Brazilian institutes was supplemented with the knowledge, experience and investigations of the rest of the world. This came as a result of their opening to private investment.
Thanks to this open and collaborative framework, Petrobras’ knowledge, together with the capital and experience of international companies, led to the discovery of new large reserves in the so called pre-salt basins; these reserves were hidden deep under a thick layer of salt. This exploitation polygon holds oil and gas deposits equivalent to approximately 40 billion barrels, and according to data collected by the National Oil and Gas Institute in Rio de Janeiro State University, it is estimated that there are 176 billions of crude oil barrels yet to be discovered.
These discoveries have been the most relevant ones in the last 30 years of the world pe-troleum history. Just a decade ago, they predicted a thriving future for Brazil. It was said that the time had come for a South American giant to rise. Unfortunately, Cardoso’s successor, Luiz Inácio Lula da Silva, driven by a strong economic nationalism, overturned the opening reforms. With total control of the sector, no institutional weights and counterweights, Lula turned his back on the world and tried to position Petrobras as the dominant player by restrict-ing private investments and forcing all developments to go through Petrobras, as a majority stakeholder and the sole operator.
Likewise, projects were imposed heavy burdens and the national content goals were in-creased despite the lack of services available in the country. The result? Investments did not reach the levels envisaged and projects that had already started were held back due to alarm-ing cost overruns. What is worse, the key roles of talent, imagination and technology were replaced with discretion, opacity and state-proclaimed winners and losers. After the recent drop in oil prices, these inefficiencies and the big corruption scandals in Brazil came out to the open. Brazil, again, lost a whole decade. Now the country is trying to straighten its path to bring back investments.
Nowadays, Brazil is caught in a corruption spiral. After having lost a decade of develop-ment, it now seeks to get back on track.
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Source: The Economist
In spite of everything, Petrobras produces 2.14 million barrels daily, which is a record for the South American giant. Still, this number is far from the 4.5 million barrels proposed in its 2012-2017 business plan.
Source: Petrobras.Image: OIL AND NATURAL GAS PRODUCTION AT PETROBRASAverage 17
Total oil and LNG production (Mbpd)Total natural gas production (Mboepd) (5)Total Oil, LNG and natural gas production (Mboepd( 85)
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23nuevamenteperdióunadécada,perohacorregidoelrumboyestáviendorenacerlainversiónen
suindustria.
Hoyendía,Brasilestáatrapadoenunaespiraldecorrupción,conunanuevadécadaperdida
ensudesarrollo,ybuscandoenderezarelrumbo.
fuente: The Economist
fuente: Petrobras.
producción de petróleo y gas natural de petrobras.
3000
2000
1000
0PROMEDIO 17
Producción total de petróleo y LGN (Mbpd)Producción total de gas natural (Mboepd) (5)Producción total de petróleo, LGN y de gas natual (Mboepd) (5)
MAY/16 ABR/17 MAR/17
Sinembargo,Petrobrasseencuentraconunaproducciónde2.14millonesdebarrilesdiarios,
querepresentanunaproducciónrécordparaelgigantesudamericano,perobastantelejosdelos
4.5millonesdebarrilesdiariosqueprometíanensuplandenegocios2012-2017.
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23nuevamenteperdióunadécada,perohacorregidoelrumboyestáviendorenacerlainversiónen
suindustria.
Hoyendía,Brasilestáatrapadoenunaespiraldecorrupción,conunanuevadécadaperdida
ensudesarrollo,ybuscandoenderezarelrumbo.
fuente: The Economist
fuente: Petrobras.
producción de petróleo y gas natural de petrobras.
3000
2000
1000
0PROMEDIO 17
Producción total de petróleo y LGN (Mbpd)Producción total de gas natural (Mboepd) (5)Producción total de petróleo, LGN y de gas natual (Mboepd) (5)
MAY/16 ABR/17 MAR/17
Sinembargo,Petrobrasseencuentraconunaproducciónde2.14millonesdebarrilesdiarios,
querepresentanunaproducciónrécordparaelgigantesudamericano,perobastantelejosdelos
4.5millonesdebarrilesdiariosqueprometíanensuplandenegocios2012-2017.
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dermined. In an aim to control everything, all the talent and sources of success were drowned and the buoyant investment will eroded. The current government has lifted the restrictions imposed by Lula and his successor, Dilma Roussef. The first auctions held under this more liberalized –although still quite restricted – regime, have achieved outstanding results in terms of the bonds attained. However, as most analysts point out, Brazil’s figures are far from what the country could have obtained just a few years ago.
Venezuela
For many reasons, Venezuela is one of the most relevant countries in the international oil market; two of them being that Venezuela is a founding member of OPEC14 and it possesses the largest oil reserves in the world, with more than 300,000 million barrels of crude oil.15 Nonetheless, its production is barely 2.4 million barrels a day, making it the eleventh largest producer in the world.16
In the middle of the 1990s, the Venezuelan oil opening initiative17 was designed to offer international companies the opportunity to participate in the industry under the umbrella of operational service contracts. These contracts stipulated the Venezuelan State participation – through Petróleos de Venezuela, S.A. (PDVSA) – as a minority partner.18 Although the bet was moderate because it limited investment opportunities to working with PDVSA exclusively, it did lead to relevant developments built with private capital and technologies. That explains what is left today of the old Venezuelan glory.
PDVSA lived its best years under the leadership of Luis Giusti. This respected engineer not only devised and executed the opening plan, but also consolidated the greatest bet on talent and knowledge seen in Latin America. Back then, PDVSA had the most relevant team of in-dustry professionals of all state companies; however in 1999, Hugo Chavez came into power and started a long-lasting harassment campaign against those who dared to think differently. During his presidential campaign he promised that his first action as president would be to fire PDVSA’s General Manager. That is how the talent slaughter started, and with that, Ven-ezuela’s loss of its true wealth.
Venezuela’s problems were only beginning. A couple of years later, Chavez passed a new Law on Hydrocarbons, which superseded the old 1943 Law. This new law came into force in 2002. It set the path to the statism that continued later on. In 2007, with the conversion decree, all concessions were transformed into joint ventures and PDVSA became the majority holder. This action unilaterally reduced foreign companies’ participation to the point that many of them were completely taken out. This uncertainty environment stopped investments.
14. PDVSA. Available at: http://www.pdvsa.com/images/pdf/publicaciones/libros/privatizacionpetrolera.pdf15. British Petroleum, Statistical World of World Energy 2017. Available at: http://www.bp.com/content/dam/bp/en/corporate/pdf/ener-gy-economics/statistical- review-2017/bp-statistical-review-of-world-energy-2017-full-report.pdf16. International Energy Agency17. Ibid.18. Ibid.
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OR This emerging authoritarianism brought about additional challenges. When PDSVA work-
ers went on strike in 2002-2003, the regime opted to remove from the company –and in some cases even from the country – those workers that would not swear political loyalty to Chavez. The slow erosion of the Venezuelan democracy was just beginning, but the impact on the oil sector –the heart of its economy- was brutal: In total, 19.000 employees were fired and just like that, Venezuela lost its brilliant minds, its talent and its commitment. Oil production quickly resented all this. It went from 3.2 million barrels to 2.4 million barrels a day. Venezuela has not been able to recover from this downfall. In contrast, the world has now 19,000 Venezue-lan talents that are helping to shape the industry. Mexico is home to many of them and their contributions are significant.
The Venezuelan tragedy is far from over. With the fall of oil prices and the need for re-sources, Venezuela has endangered its future with the acquisition of 30 billion dollars in oil credits granted by the People’s Republic of China. Now, in a crisis that has reached very deep levels, the Bolivarian Revolution –which aspires to put everything in the government’s hands to have total control – has been left with no other option than to give away 40% of its exports to China. In this sense, Caracas has fallen into debt with Beijing to make up for its multiple mistakes, it has put its production at risk to cover its increasing debt and in the end, it sells its oil at discount price.
Source: Taken from The Economist, Praying to pay, February 20, 2016.IMAGE: PDVSA AND VENEZUELA SOVEREING DEBT (BILLION USD)
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25Asimismo,elemergenteautoritarismogeneródesafíosadicionales.Cuandoestallólahuelga
detrabajadoresenPDVSAen2002-2003,elrégimenoptóporsacardelaempresa—yenalgunos
casos,delpaís—atodoslostrabajadoresquenodemostraranlealtadpolíticaaChávez.Lalenta
erosióndelademocraciavenezolanaapenascomenzaba,peroenelsectorpetrolero,corazónde
sueconomía,elresultadodeestapurgafuebrutal:entotal19000empleadosfuerondespedidos,
asíVenezuelaperdiósusmentes,sutalentoycompromiso.Laproducciónpetrolerarápidamente
loresintió,pasandode3.2millonesdebarrilesa2.4millonesdebarrilesdiarios.Venezuela
nosehapodidorecuperardeestedecaimiento.Encontraste,elmundohoycuentacon19000
talentosospetrolerosqueestántransformandoindustrias.Méxicoeselnuevohogardemuchos
deellosysuscontribucionesyasonsignificativas.
Latragediavenezolananohaterminadoyahorahipotecasufuturoconlaadquisiciónde30mil
millonesdedólaresenesquemasdecréditosporpetróleootorgadosporlaRepúblicaPopularChina,
estocomoconsecuenciadelacaídadelpreciodelpetróleoyantelanecesidadderecursos.Ahora,
enunniveldecrisisaúnmásprofunda,laRevoluciónBolivarianaquetodobuscabacontrolar
yponerenmanosdelEstado,notienealternativamásqueentregarel40%desusexportacionesa
China.Enesesentido,CaracasseendeudaconBeijingparataparsusmúltipleserrores,hipoteca
suproducciónparacubrirsucrecientedeuday,alfinal,vendesupetróleocondescuento.
fuente: Tomado de: The Economist, Praying to pay, 20 de febrero de 2016.
deuda soberana de venezuela y pdvsa (miles de millones de dólares).
2016 2017 2018
4
3
2
1
0
Principal:Interest:
Sovereign PDVSA
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With the creation of Yacimientos Petrolíferos Fiscales S. A. (YPF) in 1922, Argentina start-ed a relatively nationalized production, although it still left room for private capital collabo-rations.19
In the time of Peronism, the government passed a State Reform Law, which established the denationalization of the country’s economic and strategic energy resources. Then in 1992, Menem’s administration transferred all hydrocarbon reserves from the nation state to the prov-inces. In this second period, however, the liberalization efforts were excessive and YPF ended up completely privatized without having developed true competence in the process; hence, it did not have independent regulatory authorities or clear public policy objectives.
Spanish company Repsol bought YPF and turned it into Repsol YPF.20 The Spanish oil corporation was accused of overexploiting the reserves, overlooking the possibility of explor-ing new opportunities. To a large extent, this was due to the lack of opportunity planning and proper investment conditions, together with the constant economic and ideology fluctuations in Argentina. In the face of these crises, the austral nation froze its prices, and with that, its fu-ture, as the lack of investment incentives worsened the supply crisis, which grew exponentially and led to an increase of 110% in fuel imports in 2011.
Subsidy costs opened a huge gap in public finances. In the meantime, the government accused Repsol of not investing enough, leading Argentina to lose its energy independence. So instead of solving the issue and risking her popularity, Cristina Fernández de Kirchner’s ad-ministration opted to bet on the company’s nationalization arguing it would go back to being the great state-owned oil company it used to be before privatization. However, instead of this, the expropriation of 51% of YPF – previously controlled by Repsol in its entirety – increased the level of uncertainty around the country’s Rule of Law and investment protection.
This hostile environment towards investments and legal certainty not only affected the Argentinean oil and fuel market, but also its huge renewable energy potential, namely wind power, which is one of the largest in Latin America. Like Mexico, Argentina has proposed aggressive goals to include renewable energies in its energy matrix. This was reflected in law 26.190 passed in 2007. It established that 8% of the electric power should come from renewable energies.21 To this end, the Argentinian State would offer subsidies of up to 15 Argentinean Peso per MWh generated, as well as a series of fiscal benefits such as early VAT reimbursement and accelerated amortization of associated works. However, progress from then to 2017 has been very slow, so the country has only achieved 1.8% of electric power generation through renewable energies.22
19. Risuleo, Fernando, Historia del Petróleo en Argentina, Cámara Argentina de Construcción, Buenos Aires, 2012.20. Ibid.21. Ente Nacional Regulador de la Electricidad, Ley de fomento para el uso de fuentes renovables de energía destinada a la producción de energía eléctrica. Available at: http://www.enre.gov.ar/web/bibliotd.nsf/($IDWeb)/7FF64862636FA7A10325725700445B21 22. See: Clarín, Energías renovables: la onda verde mundial que la Argentina busca alcanzar. Available at: https://www.clarin.com/suple-mentos/zona/energias- renovables-onda-verde-mundial-argentina-busca-alcanzar_0_r1byuWiXW.html
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OR With the coming to power of president Mauricio Macri, the swaying Argentinean
economy has started to revert many of the measures that led the South American country to compromise its economy. The exchange rate has been liberalized, past debts have been nego-tiated, and new investment opportunities have opened, particularly in the non-conventional resource deposit of Vaca Muerta, the third largest of its kind in the world. Only time will tell if Macri’s reforms will include enough transparency and investment protection elements to allow the austral nation to achieve the full potential that its shale deposits forecast.
Mexicoin a Mirror
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Mexicoin a Mirror
At the beginning of the 21st century, the energy sector around the world was living a revolu-tion in which Mexico, for decades, decided no to participate. The set of rules that came after the Oil Expropriation and the nationalization of the electric industry – both in the 1960s- set forth a series of principles characteristic of closed models:
• The State as the governing body and principal actor of the industrial energy branch:• Public debt and expenses as a means for investing in state companies;• The use of oil revenue as a pillar for public finance and current expenditures• Internalization of risk within the State operational structure• Price control under discretional management criteria, specially generalized subsidies to decrease inflation
These principles converged with different events that enabled the temporary extension and deferral of reform decisions on energy public policies. The key to this deferral was the discovery of Cantarell, one of the most important petroleum deposits worldwide – the sixth largest in the world, although only a third of Gawar in Saudi Arabia. This discovery led to unprecedented production levels.
Cantarell, without a doubt, had a relevant impact, as it allowed Mexico to figure out its energy deficit, if only temporarily. In turn, it granted continuity to the high oil production levels, which catapulted the country to becoming a key player at international level. On the other hand, it also brought about profits that helped adjusting budget deficiencies. Moreover, it fostered the development of an unprecedented oil zone in the southeast region of Mexico.
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Source: International Energy Agency
IMAGE: BRENT & WTI PRICE 1987-2016 (DOLLARES PER BARREL)
Nevertheless, this “abundance management” also led to adverse consequences, as it per-petuated the actors’ distribution around Pemex, reduced the incentives for developing infra-structure and minimized potential investments in the country while the debt and liabilities increased.
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Europe Brent (Dollars per barrel) WTI (Dollars per Barrel)
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fuente: Agencia Internacional de Energía.
precios del brent y wti, 1987-2016.
(dólares por barril).
Perola“administracióndelaabundancia”tambiéngeneróconsecuenciasadversas,puesperpetuó
eltablerodejugadoresalrededordePemex,redujolosincentivosparalaproduccióndeinfraes-
tructura,minimizólasinversionespotencialesenelpaís,mientrasseacumulabaunaimportante
deudayseincrementabaelpasivolaboral.
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fuente: Agencia Internacional de Energía.
producción de petróleo crudo en países selectos, 1975-2014.
(mtoe)
600
400
200
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
INICIO DE OPERACIONESDE CANTARELL
PICO DE PRODUCCIÓNDE CANTARELL
APROBACIÓN REFORMA
ENERGÉTICA
ÉPOCA DEL PETRÓLEO FÁCILMEXICANO
MéxicoEstados UnidosArabia Saudí
BrasilNoruegaRepública Bolivariana de Venezuela
Eldesgastedelmodelofuemostrando,paulatinamente,suslimitaciones.Ademásderegistrarse
unacaídasostenidaenlaproducción,elvínculoentrepetróleoylasfinanzaspúblicasevidenció
unadualidaddedependenciayfragilidad.
Source: International Energy Agency
IMAGE: CRUDE OIL PRODUCTION IN SELECTED COUNTRIES, 1975-2014 (MTOE)MEXICO BRAZILUNITED STATES OF AMERICA NORWAYSAUDI ARABIA BOLIVARIAN REPUBLIC OF VENEZUELA
The wearing of the model started showing its limitations little by little. Apart from the
sustained drop in production, the link between oil and public finance soon made the depen-dency / fragility duality apparent.
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$ 25 000 000.00
$ 20 000 000.00
$ 15 000 000.00
$ 10 000 000.00
$ 5 000 000.00
$ 0.00
Total Ingresos petroleros
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
fuente: Secretaría de Hacienda y Crédito Público.
ingresos del gobierno federal mexicano, 1986-2016.
(millones de pesos)
Laépocadelpetróleofácilterminóconunarealidaddesalentadora:peseaquecadavezsein-
yectabanmayoresnivelesdeinversiónpúblicaalaempresaparaestatal,losnivelesdeproducción
erancadavezmásbajos.Comosepuedeobservarenlasiguientegráfica,esunmitoqueaPemex
selehaya“ahorcado”porfaltaderecursos,comofrecuentementeseaduce.Nadamásalejadode
laverdad:desde1997yalolargodecuatroadministraciones,elpresupuestodePemexcreció
significativamente.
Source: Mexican Ministry of Finance and Public Credit
IMAGE: FEDERAL GOVERNMENT OF MEXICO’S REVENUE 1986-2016 (MILLION PESOS)
TOTAL / OIL REVENUE
Those times of “easy” oil ended on a disappointing note. Regardless of the high levels of public investments constantly injected to the state company, production levels were lower and lower. As the chart below shows, Pemex was never “strangled” by a lack of resources, as it is commonly adduced. In fact, nothing could be further from the truth. Since 1997 and throughout four different administrations, Pemex’s budget increased significantly.
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fuente: Pemex.
inversión vs. producción petrolera 1978 – 2016.
30
25
20
15
10
5
0
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
1970
1980
1980
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
InversiónProducción
MILES DE MILLONESDE DÓLARES
MILLONES DE BARRILES
DIARIOS
FueapartirdeeseañoqueseobservóunacrecientedisposiciónderecursosaPetróleosMexi-
canosloscuales,para2004,erancomparablesalospresupuestosdeinversióndelasgrandesem-
presaspetrolerasprivadas.Dehecho,lascurvasdeinversióndePemexsonsimilaresalasdeotras
empresas,esdecir,reflejanunprofundovallede1984a1996quecoincideconunafuertecaídade
preciosyseguidodeunaimportantecrestaquesoloseredujocuandolospreciosvolvieronabajar.
Sinembargo,sielcomportamientodelainversiónenPemexhasidoesencialmentesimilaral
deotrasgrandesempresaspetrolerasmundiales,susresultadosdeproducciónnoloson.Mientras
lasapuestasdecasitodaslasempresaslasllevaronamayoresnivelesdeproducciónyrefinación,
enPemexlaapuestaenChicontepecenelproyectoAceiteTerciariodelGolfo(ATG)ylasrecon-
versionesderefineríasquedaronmuylejosdelosobjetivosbuscados.Hoyendíalaproducción
yanosuperalos2millonesdebarrilesdiariosyestamosmuyalejadosdelos3.4millonesquese
lograronproduciren2004.
Loanterior,sincontarconloscostosdelossubsidiosaloscombustiblesyalaelectricidadque
alcanzaronmontoscasiinmanejables,acostadeotrasprioridadesnacionales.Porejemplo,en
2012,únicamenteelsubsidioalagasolinaalcanzolos220milmillonesdepesos,elequivalente
aalrededoral1.4%delPIB,oa3veceselpresupuestodelprogramaOportunidadesdecombateala
Source: Pemex.IMAGE: INVESTMENT VS. OIL PRODUCTION 1978 – 2016BILLION DOLLARS / MILLIONS OF DAILY BARRELSINVESTMENT
PRODUCTION
As of that year, more and more resources were destined to Petróleos Mexicanos. By 2004,
these resources were comparable to investment budgets of large private oil companies. As a matter of fact, Pemex investment curves are very similar to those of other companies; that is, they display a deep valley from 1984 to 1996 that matches the severe price drop, and then a significant peak that only went down when prices dropped again. Although Pemex’s invest-ment behavior has been essentially similar to other international oil companies, its production results have not. While most of the companies’ bets led them to greater production and refin-ing levels, Pemex bet on Chicontepec and its Tertiary Gulf Oil Project (ATG) as well as on the reorientation of its refineries fell way behind its initial objectives. Nowadays, production is not more than 2 million daily barrels, a lot less than the 3.4 millions produced in 2004.
The above does not consider the cost of fuel and electric power subsidies, which reached unmanageable costs. It goes without saying that this traded off against other national priorities. For instance, in 2012 the gas subsidy reached 220 billion pesos, which is equivalent to around
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R1.4% of the country’s GDP, or three times the budget of the national program for tackling poverty.
Clearly, this was not the best use of fiscal resources, as this subsidy for the rich was in det-riment of the poor. That same year, electric power subsidies exceeded 57 billion pesos, little more than 0.75% of the GDP. The two subsidies combined add up to more than 2.2% of the GDP and a quarter of the total Mexican energy sector.
Regarding the balance of the national energy scale, 2006 registered a negative growth trend, which slightly recovered by 2011, only to go back to decreasing rates again. This behav-ior is multifaceted. On one hand, it reflects the country’s amazing industrial takeoff, thanks to its exporting manufacturing industry and booming domestic market with ever-increasing energy demand. On the other, however, it also reflects a negative balance: the inability of the single-company model to keep up with the Mexican economy. It is worth pointing out that this is not Pemex situation only; any company –public or private – with similar rules and legal limitations would get similar results.23
Source: INEGI
23. Dictamen de Reforma Energética en el Senado mexicano por parte de las comisiones unidas de Puntos Constitucionales, Energía, y Estudios Legislativos; December 9, 2013. Available at: http://infosen.senado.gob.mx/sgsp/gaceta/62/2/2013-12-09-1/assets/documentos/Dictamen_energetica_.pdf
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fuente: INEGI.
saldo de la balanza energética, 2000-2016.
25 000
20 000
15 000
10 000
5 000
—
(5 000)
(10 000)
(15 000)
MILLONES DE DÓLARES
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
23. Dictamen de Reforma Energética en el Senado mexicano por parte de las comisiones unidas de Puntos Constitucionales, Energía, y Estudios Legislativos;
9 de diciembre de 2013. Disponible en: http://infosen.senado.gob.mx/sgsp/gaceta/62/2/2013-12-09-1/assets/documentos/Dictamen_energetica_.pdf
pobreza.Claramente,noeselmejorusodelosrecursosfiscales,puessubsidiabaalosmásricos,
endetrimentodelosmáspobres.Enelmismoaño,lossubsidioseléctricosfueronsuperioresa
los57milmillonesdepesos,pocomásde0.75%delPIB.Lasumadeambossubsidiosesmayor
al2.2%delPIByrepresentabaunacuartapartedeltamañototaldelsectorenergéticomexicano.
Encuantoalsaldodelabalanzaenergéticanacional,seregistróunatendenciadecrecimiento
negativoen2006,conunaligerarecuperaciónhacia2011,paraluegoregresaratasasdecrecientes.
Estecomportamientoesmultifacético.Porunlado,reflejaelincreíbledespegueindustrialdelpaís,
araízdeunapoderosaindustriamanufactureradeexportaciónyunpujantemercadointernocon
unacrecientedemandaenergética.Pero,porelotro,reflejatambiénunsaldonegativo:laincapaci-
daddelmodelodeempresaúnicaeinversiónacotadaalEstadodemantenerleelpasoalaeconomía
mexicana.Esto,valelapenaacotarlo,noesunsímildePemex,cualquierempresa—públicao
privada—conmandatoylimitacioneslegalessimilares,tendríaresultadosparecidos.23
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R The unbalance between an economy built by everyone and an energy sector dependent on the abilities of just one actor was unsustainable. The challenge was not about a national investment champion, but about the absence of private actors to supplement the State’s work, enable partnerships and transfer knowledge.
In conclusion, the closed model was not aligned to the new Mexican oil reality. While the country continued growing, the State was no longer able to cover this new demand with its outdated rules. Even with increasing investment budgets, production fell behind, to the point that we saw a decrease of a million daily barrels from our production peak in the last decade to the enforcement of the new reform. Despite its significant natural resources, Mexico was a step behind in addressing the industry and country’s needs.
As for the electric power sector, the model that placed the Federal Commission (CFE) at the center of the monopoly was no different to the oil sector. The previous design positioned CFE as the sole actor absorbing all transmission operating risks, especially those derived from non-scheduled electric power distribution, which is basically an euphemism that refers to illegal power outlets commonly known as “diablitos”.
In the final analysis of the old energy model for both sectors –electric and hydrocarbons – the Mexican State faced inherent risks and failures, and with the subsidies collectivization, we citizens ended up absorbing said risks and failures.
Mexico and the Inevitability of a New Energy Model
The New Mexican Energy Model is the result of a collective decision that was publicly discussed for years. It is based on the conviction that Mexico had to do things differently. Edgar Rangel, a key actor of this transformation, often quoted Albert Einstein during these discussions to point out that it was impossible to expect different results if we continued mak-ing decisions in the same old fashion. This phrase basically encompassed our entire national energy dilemma.
The debate was long and varied. It probably started with the liberalization of the econo-my and the opening of protected markets in the early 1980s, and culminated when Mexico ratified the General Agreement on Tariffs and Trade (GATT) in 1986 – the predecessor of the World Trade Organization (WTO). The model started taking real shape at the beginning of the next decade, when the possibility of opening the petrochemical industry and some branches of the electric power industry was discussed. In the end, the result –which was more a reflection of the political limitations than the technical needs – enclosed the development of our petrochemical industry just when the demand was taking off as a result of the commer-cial opening.
The preliminary paths for the energy policy reorientation started in the 1990s, although they were still limited to specific sectors of the petrochemical, natural gas, and electric power industries. At that time, the search for in-depth solutions was still limited as well. It was not until 2013 that the discussion finally led to a technical and regulatory debate. The aim was to balance the indisputable principles of the property of the nation, the Government control, the economy efficiency and the accountability towards society. This was only possible thanks
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Rto the concurrence of political wills among different parties that formed a coalition and voted and shared ideas before the Congress.
The electric power sector, for its part, still had room for private investment, but it was re-served for specific electric power generation modes, limited to third party self-consumption or to sell to CFE exclusively. The reforms of the early 1990s that made this participation possible did not seek to build a market, only to diversify the generation alternatives under the control of the state company. The various restrictions throughout the chain of value undermined the country’s competiveness and let to electric power fees 26% higher than in the US (considering the subsidy).24
The new model, approved in 2013 after being discussed for more than a quarter of a century, kept underground hydrocarbons as part of the property of the nation. Nonetheless, it set forth new execution mechanisms for the private sector. At the same time it created a series of weights and counterweights to guarantee the government’s control and the execution of long-term public policies, and a series of mechanisms to ensure transparency and prioritize the national interest. In essence, the model introduced two fundamental attributes: transver-sality and promptness. Transversality because it is not limited to a partial discussion on energy; on the contrary, it offers a holistic view on the different chains of value and their incorporation to the national economy. Promptness because of the discipline with which it has been imple-mented and the markets have reacted.
In this sense, the new model stands for:• The reaffirmation of the country’s ownership of underground hydrocarbons. Oil resources still belong to all Mexicans. At the same time, private participation in the hydrocarbon and electric power sectors is allowed.• The Government’s authority over the implementation of the energy policy, exercised through an innovative and comprehensive institutional reengineering.• The end of the monopoly exerted by state companies and the creation of an energy market where the public and private initiatives coexist.• The transition of Pemex and CFE from self-regulated public entities to State-owned Production Companies with sophisticated instruments that will make them profitable and capable of competing or associating with new players to acquire new techniques, abilities and technologies.• The incorporation of mechanisms for guaranteeing transparency, legal certainty and the strengthening of Rule of Law.
The model gave rise to a new and renovated ecosystem of public institutions where roles are clearly segregated. The SHCP and the Ministry of Energy respectively are in charge of de-signing public policies. In addition to this, other entities were created for specific sectors: the National Energy Control Center (formerly an operational center within CFE’s structure), the National Gas Control Center, the National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA), and the Mexican Oil Fund for Stabilization
24. Estimate of average rates for the first quarter of 2013. The actual rate, without taking the subsidy into consideration, was 73% higher than the one in the US. Energy Information System, US Energy Administration. US rates converted to MXP. Exchange rate:12.64 pesos/dollar, daily average currency exchange rate for the first quarter of 2013.
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R and Development (Fondo Mexicano de Petróleo para la Estabilización y el Desarrollo, FMP).Other regulatory bodies already existing such as the National Hydrocarbons Commission
(CNH) and the Energy Regulatory Commission (CRE), were given more responsibilities and regulation instruments, insofar Pemex and CFE went from being self-regulated public entities to State-owned Production Companies.
The development and production of oil reserves, for their part, went from discretional man-agement to a bidding rounds approach so that both domestic and foreign companies could participate according to the government rules and the minimum investment, revenue and tax requirements.
Source: COMEXI, 2017.
These new rules are substantially modifying Mexico’s perspective for the forthcoming de-cades. Instead of continuing going down the production and reserves slope, we finally see the possibility of improving by leaps and bounds. Although full implementation will take some time, forecasts are really convincing. During the talks for joining the International Energy Agency, this international entity dependent on the OECD, developed a forecast of Mexico’s energy future and compiled it in a document titled Mexico Energy Outlook.
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fuente: comexi, 2017.
enfoque de rondas de participación.
CENAGAS
CENACE
ASEA
Conducción de la política energética. Diseña y define licitaciones.
Participan en mercados de energía como competidores por parte del Estado.
Asesoría técnica a SENER. Ejecuta licitaciones. Revisa planes de extracción. Administra contratos petroleros.
Regula y otorga permisos en hidrocarburos y electricidad.
Operador del sistema nacional de ductos de transporte y almacenamiento. Gestor de los ductos del Estado.
Órgano de la Semarnat encargado de la seguridad industrial y de protección al medio ambiente del sector hidrocarburos.
Operador del sistema eléctrico nacional, el mercado eléctrico mayorista, acceso a la red nacional de transmisión y redes generales de distribución.
Establece condiciones económicas para licitaciones y contratos.
SENERSecretarías
EmpresasProductivasdel Estado
ÓrganosReguladoresCoordinados
Descentralizados
Descentralizados
SHCP
PEMEX
CFE
CNH
CRE
ESTADO
ProtecciónalMedioAmbientedelSectorHidrocarburos(ASEA)yelFondoMexicanodelPetróleo
paralaEstabilizaciónyelDesarrollo.
Órganosreguladoresyaexistentes,comolaComisiónNacionaldeHidrocarburosylaComisión
ReguladoradeEnergíaobtuvieronmayoresatribuciones,responsabilidadeseinstrumentosde
regulación,entantoquePemexyCFEpasarondeserparaestatalesaserEmpresasProductivas
delEstado.
Eldesarrolloyproduccióndelasreservaspetroleras,porsuparte,pasarondelaadministración
discrecionalhaciaunenfoquederondasdelicitaciónparaqueempresasnacionalesyextranjeras
pudieranparticiparconlasreglasdeterminadasporelEstado,yconformeagarantíasmínimasde
inversión,utilidadesyelpagodeimpuestos.
LasnuevasreglasestánmodificandosustancialmentelasperspectivasparaMéxicoenlas
próximasdécadas,pues,enlugardecontinuarenlapendientedescendientedeproducción
yreservas,finalmentetenemosescenariosposiblesdemejoríasustancial,yaunquesucompleta
implementacióntardaráalgúntiempo,lasproyeccionessoncontundentes.Durantelasdiscusiones
deingresoalaAgenciaInternacionaldeEnergía(IEA,porsussiglaseninglés),esteorganismo
internacionaldependientedelaOCDEconstruyóunaprospectivadelfuturoenergéticodeMéxico,
eneldocumentoMexico Energy Outlook.
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RAccording to the IEA, thanks to the reform, Mexico could increase its production by 1.1 million daily barrels by 2040. In contrast, if we continued with the closed model, production would not vary in the following 23 years.
Source: COMEXI, with data from the Mexico Energy Outlook, IEAIMAGE: Mb/d FORECASTED FOR MEXICO AND THE COST OF NOT REFORMINGForecasted Mb/d: Cost of not reformingOpportunity Cost / With Reform / Without Reform
The new Energy Model encompasses other interesting elements, such as the implementa-tion of a Round 0, in which Pemex, as a state player, receives a preferential initial treatment, as other countries have done when transitioning from a closed model to an open market one. After Round 0, Pemex got 83% of the reserves 2P and 21% of the forecasted resources.
As mentioned before, aside from Round 0, Pemex was given new tools to compete and partner with other global companies. Proof of that is the securing of Block 3, Round 1.4 (deep waters) in a consortium comprised by Inpex, Chevron and Pemex, and Blocks 2 and 8 of Round 2.1 (shallow waters) with DEA and Ecopetrol respectively.
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fuente: comexi, con datos del Mexico Energy Outlook, AIE.
Mb/d proyectados para méxico y el costo de no reformar.
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2
Costo de oportunidad
Mb/d PROYECTADOS: COSTO DE NO REFORMAR
Con reforma Sin reforma
2020
2025
2030
2035
2040
2.4
2.35
2.1 2.1 2.1
2.3
2.6
3.0
3.2
3.4
SegúnlaIEA,graciasalareforma,Méxicopodráaumentarsuproducciónen1.1millonesdebarriles
diariosadicionalespara2040.Encontraste,sicontinuáramosconelmodelocerrado,laproducción
semantendríaenlosnúmerosactuales,porlospróximos23años.
ElnuevoModeloEnergéticotieneotroselementosinteresantes,comoelestablecimiento
deunaRonda0,endondePemex,comojugadorestatal,recibióunaparticipacióninicialpre-
ferente,comohaocurridoenotrospaísesquehantransitadodeunmodelocerradohaciaunodelibre
mercado.TraslarealizacióndelaRonda0,Pemexobtuvoel83%delasreservas2Pyel21%de
losrecursosprospectivos.
Comosemencionóantes,ademásdelaRonda0,seotorgóaPemexnuevasherramientasque
lehanpermitidocompetiryasociarseconotrasempresaspetrolerasglobales.Ejemplosdeellosonla
obtencióndelBloque3enlaRonda1.4(aguasprofundas),enunconsorciojuntoaInpexyChe-
vronydelosBloques2y8delaRonda2.1(aguassomeras)conDEAyEcopetrol,respectivamente.
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R Likewise, these new instruments have allowed closing various farm outs (an open and transparent bidding process led by the CNH through which Pemex is finding new partners). The first one was the Trion Block, together with BHP Billiton. This is an eleven billion dollar project – the most important investment in the country. Other projects have also followed; these are smaller projects, but also relevant for Pemex cultural transformation into a compet-itive entity. Examples of these are Ogarrio and Cardenas Mora’s projects. In January 2018, Pemex will seek new partners in the deep waters sector for the Nobilis-Maximino project.
After Round 0, there have been other seven bidding processes for Rounds 1 and 2. The outcomes have been quite promising.
Source: COMEXI WITH SENER DATA
The information on the bidding rounds is quite revealing in terms of learnings and results. As seen above, Round 1.1 got an allocation rate of barely 14%; the lowest one registered in all seven bidding processes conducted so far.
Then, both Round 1.3 and Round 2.3 got a 100% allocation rate; moreover, 85% of the Rounds have obtained allocations above 60%. In terms of investment, Round 1.4 alone ac-counted for investment commitments of approximately 34,400 million dollars, provided the projects are successful during the exploration phase.
But not only the Rounds have been successful; the tender winners are already finding im-portant sources of oil that will translate into oil profits. The consortium led by Talos Energy (US) in partnership with Mexican company Sierra Oil & Gas and Premier Oil from Great Britain were the first winners of a competitive bidding in our country, as well as the first private companies to make a discovery: the Zama-1 well with approximately 1,400 – 2,000 million oil barrels on site.
This discovery is particularly iconic not only because of its significant size, but also because it proves the advantages of the reform. Now, our country has gotten new perspective and has found a new way of understanding the underground. Instead of exploring the geological
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39Deigualforma,losnuevosinstrumentoshanpermitidolaconclusióndevariosfarmouts,
unprocesoenelcual,atravésdelicitacionesabiertasytransparentesconducidasporlaCNH,
Pemexestáencontrandosocios.ElprimercasofueenelBloqueTriónconBHPBilliton.Este
proyectodeoncemilmillonesdedólareseslainversiónmásimportanteenelpaís.Lehan
seguidoproyectosdemenorenvergadura,perotambiénimportantesenlatransformación
culturaldePemexenunentecompetitivo,comohansidolosproyectosdeOgarrioyCárdenas
Mora.Enenerode2018,Pemexvolveráabuscarsociosenaguasprofundasparaelproyecto
Nobilis-Maximino.
TraslarealizacióndelaRonda0,sehanllevadoacaboademássieteprocesosdelicitaciónde
lasRondas1y2conresultadosbastantealentadores.
rondas de licitación 1 y 2 de hidrocarburos.
ronda tipo bloques asignadostasa de
asignaciónlicitantes
precalificados
inversión proyectada (millones de
dólares)*
1.1 Someras 14 2 14% 25 5 000
1.2 Someras 5 3 60% 14 3 000
1.3 Terrestres 25 25 100% 51 1 000
1.4 Profundas 10 8 80% 26 34 400
2.1 Someras 15 10 67% 25 8 192
2.2 Terrestres 10 7 70% 9 1 000
2.3 Terrestres 14 14 100% 19 1 000
* en caso de éxito
fuente: comexi con datos de sener.
Losdatossobrelasrondasdelicitaciónsonmuyreveladoresencuantoalosaprendizajesy
resultados.Comopuedeapreciarse,laRonda1.1obtuvoapenasunatasadeasignacióndel14%:la
másbajaregistradaenlossieteprocesoslicitatoriosconcluidoshastaelmomento.
Después,tantolaRonda1.3comola2.3lograronel100%deasignación,yel85%delasRondasha
logradoasignacionesporencimadel60%.Entérminosdeinversión,tansololaRonda1.4(aguas
profundas)significócompromisosdeinversiónporalrededorde34400millonesdedólares,en
casodequelosproyectostenganéxitoexploratorio.
PeronosololasRondashanmostradoteneréxito:losganadoresyaestánencontrandofuentes
importantesdepetróleoquesetraduciránenrentapetrolera.ElconsorciolideradoporTalosEnergy
(EstadosUnidos),enasociaciónconlaempresamexicanaSierra Oil & Gas y Premier Oil deGran
Bretañafueronlosprimerosganadoresdeunalicitacióncompetitivaennuestropaísytambiénlos
primerosenlograrundescubrimientodeunaempresaprivada,enelpozoZama-1deentre1400a
2000millonesdebarrilesdepetróleoin situ.
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Rhorizon, as Pemex used to do, they explored a less deep area and found a new oil field. Ac-cording to one of the leading executives of this project, Zama will start operations at some point between 2020 or 2021 and will produce around 100,000 barrels a day.25 If we calculate this annually and consider a fixed price of 50 dollars per barrel, Zama could represent 1,259 billion dollars for the State, which is practically equivalent to CONACYT’s annual budget.26
Other positive outcome for Mexico was the extension of a Pemex field that was already considered old and marginal. It was not a discovery as such, but after Italian company ENI won the tender, they drilled different horizons in the fields of Amoca and Mitzon and found resources that had previously gone unnoticed. Thanks to these finding, on site resources in the contractual area increased to 1,400 million oil barrels.
In both cases, these new ways of exploring the underground have led to significant benefits for our country. These projects have rediscovered areas that Pemex had discarded, and this will bring about new production that will benefit the State without it having invested its own public resources or generated financial risks.
Surely many will claim that the government used to receive 100% of the revenue; however, had private investors not taken the risk, these areas would not have been discovered, as they had already been catalogued as marginal and were semi-abandoned. The reform is increasing the size of our resources and Mexico is getting greater profit.
Mexican hydrocarbon companies that did not exist prior to 2013 also deserve a special mention, as today they are competing against the state-owned production company and for-eign companies. Based on information provided by the Energy Ministry, more than 50 Mexi-can hydrocarbon companies have emerged under the new model and are already competing for tenders. It is not yet possible to determine the impact the new model will have on the development of Mexican companies that provide related services essential to the functioning of the whole energy system but that do not take exploration risks.
If we take a look at the events that have taken place in the electric power sector, the results are quite encouraging. The three long-term auctions held have put out 22 thousand GWh in projects that would translate into investments of around 9 billion dollars. One of the most im-pressive pieces of information is the average price of a Mega watt / hour package and a Clean Energy Certificate (CEC). While the first auction added up to 47.78 dollars in average, the most recent auction saw a decrease of less than a half, the price being 20.57 dollars MWh + CEC.
25. Production in the new deposit will start in 2021 The Economist, July 12, 2017. Available at: https://www.eleconomista.com.mx/empre-sas/Nuevo- yacimiento-iniciara-produccio26. Department of the Interior, Presupuesto de Egresos de la Federación para el Ejercicio Fiscal 2017. Available at: http://www.dof.gob.mx/nota_detalle. php?codigo=5463184&fecha=30/11/2016
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Source: COMEXI WITH SENER DATA
One of the main concerns around Mexican companies has been whether they are ready to compete or they face an adverse scenario in a context reserved for the big players only. In this regard, three factors should be taken into consideration:
• Their origin in terms of financial and operation capabilities• The competence and risk exposure strategies they have decided to follow• How familiar they are with competition, regardless of the sector, under the rules of a free market.
As for the first factor, it is worth highlighting that Mexican companies participating in the tender processes come from different backgrounds. Some of them have been created in response to the national capitals that seek to diversify their businesses; others were born from relatively low emerging capital efforts. These companies see opportunities in the medium and long terms. All of them cover the experience and skill requirements set forth by the CNH in the different prequalification processes, which always take place prior to any bidding.
While some Mexican companies have opted to participate in the bidding processes as independent corporations, others have joined the consortium aforementioned, developing partnerships with foreign companies and adopting a supplementary approach. Each business strategy includes a specific risk and opportunity vision. Some approaches are more conserva-tive – with moderate royalty proposals – while others tend to be more aggressive – with high payment percentages for the government – to secure one or more bidding blocks. This is a normal practice in open energy markets.
Finally, we need to remember that free markets work similarly in any sector or industry: companies with high levels of competitiveness survive while others perish. This is known to be true in any economic sector, not only in the energy industry. Business plans based on ade-quate risk measurements, as well as plans that are coherent with the financial and operational capacities of each economic player are key to succeed in this competition.
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41resultados de las subastas de largo plazo.
subastatipo de
tecnologíaenergía
subastadaproyectos
precio promedio mwh+cel
licitantes precalificados
inversión proyectada (millones de
dólares)
1ra — SLP Eólico Solar
6 361 GWh 17 47.78 USD 81 2 600
2da — SLP
EólicoGeotérmicaSolarHidroeléctricaCogeneraciónCiclo Combinado
10 630 GWh 23 33.47 USD 68 4 000
3ra — SLPEólicoSolarCiclo combinado
5 490 GWh 16 20.57 USD 50 2 400
fuente: comexi con datos de sener.
Unelementodeatenciónsobrelasempresasoperadorasmexicanasharadicadosobresiestán
listasparacompetiroenfrentanunescenarioadversoenuntableroreservadoúnicamentepara
losgrandesjugadores.Alrespecto,treselementossonrelevantesparalareflexión:
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enlabúsquedadediversificacióndesusnegocios,otrassurgieroncomoincipientesesfuerzosde
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enlosdiversosprocesosdepre-calificaciónpreviosacualquierlicitación.
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laslicitaciones,otraslohanhecho—comoenelconsorciomencionadopreviamente—mediante
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licitación.Estoesloqueconstituyepartedelanormalidaddelosmercadosabiertosenenergía.
Finalmente,sobreelmismotema,esnecesariorecordarqueellibremercadotieneunadinámica
similarparacualquiersectoreindustria:lasempresasquemuestranaltosnivelesdecompetitividad
subsistenysonexitosas,mientrasqueotrasperecen.Estoocurreentodoslossectoreseconómicos,
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riesgo,coherentesconlascapacidadesfinancierasyoperativasdecadajugadoreconómico,sonla
clavedeléxitoenestacompetencia.
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RAnother relevant example of the importance of the new energy model implementation is found in gas pipelines. Up until 2012, Mexico relied on a pipeline network of 11,347 ki-lometers. This network resulted from decades of investment; nonetheless, it clearly was not sufficient. It barely covered the western part of the country – the so-called Manufacturing Corridor – and only supplied natural gas to the electric power plants and industry.
Nowadays, thanks to a much more aggressive policy – implemented by the previous admin-istration – to attract and secure private investments, 2,386 km of new gas pipelines have been built, while another 4,986 are currently under construction. In just five years, the gas pipeline network has grown 65% and has reached the eastern and southern parts of the country. Soon, the national transport capacity will be doubled, so we will finally be able to talk about a true national network. We are laying the foundations to make more areas of the country econom-ically competitive.
This development is even more relevant if we consider that our industry’s competitiveness was severely undermined by the so-called “critical alerts” and emergencies. According to the Confederation of Industrial Chambers of Mexico (CONCAMIN), these incidents increased by 83% during the first decade of the 21st century. The inability of the previous model to respond to these national needs caused lower growth rates and mass layoffs in several plants. Based on the 2012 National Energy Strategy, critical alerts that year cost 18,900 million pesos (approximately 1 million dollars).27
Now, as we rely more on natural gas and, thus, electric power in new areas of the country or areas that used to be neglected, we can start imagining the articulation of new industries and chains of value, as well as the positive impact on private investments.
As a result of the New Mexican Energy Model, we need to rethink old paradigms rooted in a set of circumstances that are now in the past. The best example of this change of concepts is energy security. In the 1970s, after the oil shocks, it was firmly believed that countries that did not have energy resources physically would be vulnerable to external stresses. The long lines at gas stations and the rationing of fuels in western countries documented the suffering of not having energy resources. Hence, energy independence was vital, as it was understood as a closed model that compared self-sufficiency with sovereignty itself. However, with the on-going technological advances, this idea evolved to a more sophisticated, global and intercon-nected understanding of energy. The world realized it was not about possessing the resources, but about having access to them. Ownership was not crucial, but availability was.
The 21st century energy security – as sovereign countries with no hydrocarbons such as Ja-pan, South Korea and Singapore had taught us – consists in securing the availability of energy resources, regardless of their origin, that are competitive for consumers.
This idea is strengthened when analyzing Venezuela’s case: the country with the largest oil reserves in the whole world suffers from energy scarcity and other essential consumables on a daily basis. Under this new understanding of energy security, it is easy to see that the new Mex-ican energy model provides multiple tools and mechanisms; be it from the government, the state-owned production companies or the private companies, these tools ensure the availabili-ty of energy resources in the country. Nowadays, we import 81% of the natural gas consumed 27. A Pemex ‘se le fuga’ el gas natural (“Pemex’s gas ‘leaks’”). Expansion. Available at: http://expansion.mx/negocios/2013/05/06/a-pemex-se-le-fuga-el-gas-natural
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R in Mexico and we are not facing critical alerts like the ones that damaged the national system so badly in the past, nor public decision-makers are panicking because of direct or crossed subsidies. Thanks to the model, incentives for the development of (public or private) storage infrastructure are provided. This allows responding to unexpected demand peaks, which was a very complex issue to deal with under the closed model.
In recent months, due to president Donald Trump’s insults against Mexico and the efforts of the rest of the US to contain him, some people are concerned with the idea of the White House blocking gas supplies to Mexico, just as Russia has done with Ukraine and Eastern Europe. This is highly improbable, as unlike the Russian case, gas production in the US is not centered in one player dominated by the political establishment. The White House does not control gas producers in the US, whereas the Kremlin does have control over Gazprom. Moreover, the president of the United States needs the support of the Congress to sanction and block exports. Lastly, gas pricing in North America largely depends on the Mexican de-mand, so if Washington were to close its access to the Mexican market, its own industry would have trouble surviving financially.
Another good example that allows envisaging the future is renewable energy. While in 2013 only 13% of the total electric power generation came from this kind of technology, by 2016 it reached a bit more than 20%, according to the National Electric System Development Program (PRODESEN). What is more, solar and wind power generation was only 4% five years before. After the third electric power auction, these two sources of energy are expected to reach 11% with the new projects. This, together with other technologies, would add up to 7,451 MW of new clean energy generation.
According to the Ministry of Energy, the total investment currently committed to hydro-carbon extraction, renewable energies, seismic and gas pipelines is over 80 billion dollars. This has not required compromising the State resources or increasing the public debt. Fur-thermore, we need to add in the investments that Pemex and CFE are making on their own. In this sense, Mexico is increasing its investment levels, diversifying its risk and decreasing its dependency on debt to develop energy for growth.
It is not possible yet to guarantee success, there is still a lot to be done. If continuity is not maintained and the projects are not clearly articulated and executed, all these efforts could be in vain. More than believing that with the efforts made in the last few years we have won the race, we need to bear in mind that this is a marathon and we are just starting to pick up the pace.
The new model goes beyond the energy industry; it is also impacting other chains of value of the national economy. For instance, Belgian company AB InBev NV, the brewery behind well-known brands such as Budweiser, Stella Artois and Corona and betting on a reliable energy sector. Its CEO, Brazilian entrepreneur Carlos Brito – who suffered the cost of not having energy back in 2001 when he ran the company’s regional operations in Rio de Janeiro and faced a drought that caused blackouts in the country’s hydroelectric terminals – is betting on the development of renewable sources of energy worldwide and he has chosen Mexico to start this global transformation. At the beginning of 2017, AB InBev negotiated with Iberdrola the supply of wind power for its plant in Zacatecas, which is its largest one in the country.
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The Dilemma
Three years after the new model’s implementation, Mexico has gotten on the right track. Nonetheless, along the path we can come across easy shortcuts that can make us lose sight of the long-term perspective. Success stories can become serious setbacks if we lose focus. It has taken the country decades to get to the New Energy Model, and its consolidation could be affected if we take deceiving shortcuts or incorrect routes. The model most certainly has op-portunity areas, as it will be discussed in the following section. Yet, it is imperative to preserve its most fundamental aspects.
What could possibly put the current model at risk? Mainly, straying from the right path and taking roads that make the model’s discipline, transparency and competition encouragement vulnerable.
Every long-term public policy requires at least two virtues: patience and perspective. Pa-tience because structural changes do not happen overnight as if by magic; they require grad-ual and sustained efforts over time to achieve specific objectives that will bring us closer to our goal. Perspective because partial assessments are always risky; sometimes, stand-alone premises end up generating self-fulfilled prophecies.
When perspective and patience are not part of the equation, easy shortcuts become tempt-ing and difficult to avoid. For decades, the energy debate was riddled with short-term and partial arguments that stated what energy was supposed to be and what its usefulness for the country had to be. With the New Mexican Energy model, the country has shown maturity and forcefulness in its energy calling and long-term vision. This maturity must be passed on to all decision-makers, who must always bear in mind the vision of future, intergenerational wealth and long-term welfare.
Having said that, what could be those easy ways out that could put the model’s achieve-ments at risk? The answer is: bringing back arguments of a glorious past that would not offer accurate solutions for the future.
As warned in the case of the South American countries examined herein, this has led to significant contradictions in investments and has weakened the governments’ production ca-pacity; instead of strengthening the national champions, this idea undermines them because they are forced to be part of everything and nothing. When this path is taken, projects are not decided based on their economic value, but on their political feasibility. In this case, the country does not have what it needs, but what one sole company is able to provide, even if it is allowed to have partners. What is more, our own recent history has taught us that not only we do not move forward at the speed we need, but neither do we discover relevant opportunities, as instead of having multiple perspectives, we adhere to one single understanding of energy.
Steadily Moving Forward
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Steadily Moving Forward
Mexico has proven maturity with the design and implementation of the New Mexican Energy Model. This same maturity will allow the model’s consolidation to bring it closer to the most successful energy models around the world. All these models have displayed at least three fundamental features: discipline, transparency and competition encouragement.
Discipline is relevant for the execution of the plans set forth by the entity in charge of the bidding plans. We are fighting a global capital battle in which those models that offer more certainty in terms of plan and program execution will be better positioned. In the hydro-carbon industry, this means continuing the bidding rounds adhering to the five-year plans proposed by the Ministry of Energy. With this, Mexico will be positioned as a global energy leader. And the same applies to the electric power, pipeline, seismic and storage areas. With-out clear signals of investment, it is not possible to build the future.
As Pulso Energético – an oil industry online platform – points out, in order to achieve the oil production levels and GDP growth forecasted by the IEA in the Mexico Energy Outlook, the country needs many more rounds as successful as Round 1. As a matter of fact, it needs another 15 rounds just as successful or even more in the next 25 years.
The margin of error is very limited.28 Having rounds does not guarantee success; petro-leum is yet to be discovered and as we all know,
the probability of commercial success is always low; that is why this is a high-risk industry.However, discipline alone is not enough for generating competitive market conditions.
Transparency and fair play are also fundamental elements. Up to now, all bidding Rounds 28. El camino a USD $640 mil millones de inversion (The Path to a USD $640 billion Investment). Pulso Energético. Available at: https://pulsoenergetico.org/el-camino-a-640-mil-millones-de-dolares-de- inversion
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Although discipline and transparency are undoubtedly useful, they can only reach their full potential when the third criterion comes into play. We’re talking about encouraging com-petition. Today more than ever, Mexico must continue attracting national and foreign capital and talent. The technological and specialized knowledge deficit in non-conventional areas or renewable energies is a good opportunity.
And what could damage competition? Building artificial barriers to benefit a specific competitor; creating excessive regulations that discourage participation and reduces the pool of competitors to just a few; or establishing severely adverse fiscal policies. The energy world is filled with promising projects that are not able to take off because of regulatory wrongs.
In the same vein, some arguments try to question the validity of the contracts signed by the tender winners, notwithstanding the fact that these recent biddings are agreed to have been transparent, to the point that the international community has acknowledged them for their adherence to the allocation criteria. The energy sector institutions are working properly and the contracts stemmed from the bidding and auction processes could easily be the ones that have best complied with the competition and maximum disclosure principles in the eco-nomic history of Mexico.
Nonetheless, many voices try to question said contracts without any factual basis. These opinions follow a rather simple rationale: if doubt is cast, as irresponsible as this may be, investment capitals will display adverse incentives.
We currently are at Round 3 of the bidding process, and Round 4 is already on its way. The relevance of annual rounds lies not only in the normalization of their temporality, but also in the irrefutable public criteria that grant undeniable reliability to the winners, the industry and the benefits for the Government. The same is true for the outcomes of the Third Electric Power Auction, which results will be revealed in just a few weeks. While developing trustworthy rules and institution has taken decades, it only takes an irresponsible ungrounded public declaration to cast doubt.
However, we should not lose sight of what is important: society has the right to inquire on the information regarding contracts and payments; hence, this data is of public domain. Who-ever wishes to review the terms and conditions to verify whether national interests have been safeguarded can do so without restrictions. It only takes a web search in the CNH29, Mexican Oil Fund for Stabilization and Development30 and Rondas Mexico31 websites.
As a matter of fact, the country recently joined the Extractive Industries Transparency Ini-tiative (EITI). This is a global transparency standard regulated by Norwegian laws. It was created to have government and companies submit all their information under the scrutiny of the civil society; it allows having an independent mechanism for verifying the government and companies’ processes. This information can also be queried online at EITI’s website.32
Beyond the Model: Three Consolidation Proposals 29. National Hydrocarbons Commission. Available at: https://www.gob.mx/cnh30. Mexican Oil Fund for Stabilization and Development. Available at: http://www.fmped.org.mx31. Rondas Mexico. Available at: http://rondasmexico.gob.mx32. Extractive Industries Transparency Initiative. Available at: https://eiti.org
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The Mexican Energy Model has several opportunity areas. Some of them are analyzed below:
a) Institutional Adjustments and Regulatory Simplification
One of the challenges the current model needs to overcome is the institutional strength-ening of regulating bodies. Example of that is the National Agency for industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA).
Contrary to the substantial increase of CHN and CRE’s responsibilities in order to strengthen their technical autonomy through designations ratified by the Congress, the Agen-cy still operates in a complex legal setting, as it is attached to the Ministry of Environment and Natural Resources (SEMARNAT). This implies that one of the most important hydrocarbon regulators should escape from the legislative weights and counterweights to be more vulnera-ble to political decisions33.
It is desirable to rethink ASEA’s nature so that it can become more autonomous and – like other regulating bodies – offer greater certainty regarding the model implementation. As a recent study from OECD warns, ASEA’s legal nature “sets it apart significantly from the other two energy regulators, CNH and CRE, which have ministry-level autonomy”.34 Thus, “all three regulators should establish an integrated energy regulators ‘system that can help them overcome shared challenges and design joint solutions”.35 The study specifically advises to:
• Advocate for a multi-annual budget settlement;• Prioritize the operationalization of the ASEA trust fund and move towardsless dependence on the federal budget;• Enhance and include a transparency dimension in all ASEA activities to build trust in the regulator and boost its culture of independence. • Ensure that the reglamento unificado reflects good regulatory practices such as administrative simplification.
In reality, what the Organization suggests is to provide this public entity with the proper legal tools to separate it from the Ministry’s political decisions and bring it closer to the other specialized bodies.
From a joint perspective, OECD advises to establish a common Energy Regulators Sys-tem comprised by the CRE, CNH and ASEA, to allow the coordination and exchange of governance information. This would couple with the creation of three-year of five-year plans, including budget and resources, to meet their long-term strategic objectives; furthermore, this would be supplemented by the operational reports for assessment and adjustments during the first years of implementation.
b) The Strengthening of Pemex
33. Specifically, coordinated energy regulatory bodies, a similar autonomy figure to that of the Federal Telecommunication Institute (IFT) and the Federal Economic Competition Commission, (in the Executive Branch)34. Op. Cit.35. The Governance of Regulators. Driving performance at Mexico’s ASEA,CNH and CRE. Key recommendations. OECD, October 2017
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One of the greatest consolidation challenges is the strengthening of Pemex. Production has continued to drop, from its peak of 3.4 million barrels a day in 2004, to the current pro-duction level of little less than 2 million barrels a day. Likewise, hydrocarbon reserves have been reduced by half compared to the 44,483 million crude oil barrels of 2008. All this has taken place in a context of historically high prices with investment budgets similar to those of the largest companies in the world. So if this is the diagnosis, what is the solution? How can Pemex be inserted into this new competitive, yet collaborative, ecosystem?
It is possible to talk about the expected results in the flagship Mexican company, such as an upward production trend, a reserve restitution rate higher than 100% and a good streak of discoveries that allow penetrating new areas, both in Mexico and abroad. However, the path towards this new reality calls for renewed efforts.
It is paramount to keep in mind and underpin that the operations efficiency must be the driving core of all activities, without by any means lessening the people, equipment and ma-chinery’s security. Likewise, the Administration Council needs to analyze which lines of busi-ness display profitable conditions and which do not; these must always be aligned to Pemex’s Business Plan. The paths to strengthen Pemex should always follow the open routes of the New Mexican Oil Model:
• Collaboration and partnerships with other companies, as in the case of the Trion consortium with BHP Billiton or the partnership with Chevron and Inpex in Round 1.4 (which earned them one Block).• Competition. Pemex becomes more efficient in its processes and supply by sticking to its own reality. The generation of value is the most important aspect here, not the obtainment of new areas.• Efficiency should be the driving principle in all projects and operations, as well as in the whole chain of value.• Learning of new techniques, methods, processes, designs and project development. This learning increases exponentially when partnerships are created, albeit it can be implemented in projects in which Pemex works alone, as in the multiple Round 0 assignments or in potential alliances in areas such as transport, storage, distribution, and petrochemical processing.• Greater autonomy. This can be achieved by establishing a management council in which its government representatives do not have any other obligations or responsibilities that could give rise to conflict of interest in decision-making processes. The Council should have a long-term vision that considers the national interests and that are not affected by short-term public policies.• Internationalization. The company should seek opportunities in other latitudes with the sole purpose of becoming more profitable, not of following political agendas or foreign policy interests.
This multiple efforts, to be applied with companies of different profiles and backgrounds,
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Dpave the way towards an accelerated learning curve in which Pemex is capable of learning, embracing and implementing new knowledge and experiences in its daily operations. Al-though uncertain by nature, the results point to significant cost reductions, healthier finances and less dependency on debt. To a lesser extent, they also suggest a better soundness perspec-tive of the country.
c) The Strengthening of the Domestic Capital Framework
As previously pointed out, the success of energy models depends –among other things – on their flexibility and adaptability. In an articulated understanding of Rule of Law, the applica-ble legal framework is combined with laws, regulations and international treaties with which the country builds its legal platform both for its citizenry and the rest of the world. In turn, the whole framework interacts with the decisions made by other competitors when searching for capital and investment. The rationale is relatively simple: Those who offer better protection and competition conditions will be better positioned than the rest.
When Mexico entered the North American Free Trade Agreement (NAFTA), the trilateral regulations laid the foundations for an intense exchange of goods, services and capital that catapulted us to the global production networks. The formula has proven so successful that to this day, our country is one of the nations with more treaties signed around the world, al-though no other is as relevant as large as the first one.
There are several reasons that explain the success of this Agreement: supplementary mar-kets, geographical proximity, technological transfers and integration of chains of value, insuf-ficient transoceanic infrastructure and underdeveloped ports, among others. There is no ques-tion that the scope of these exchanges has deeply transformed Mexico. Without a doubt, the countless Canadian and American companies operating today have played a key role in the generation of jobs. With their investments and trust, they contribute to the national growth, just as Mexico does with its investments, workforce and large markets.
A relevant aspect that helps explain the reliability of investing in Mexico under the NAFTA framework is its chapter on investment protection. This section was used to create a trust-worthy platform for capital. Nevertheless, president Donald Trump’s administration has cast doubts on the near future of the International Treaty. Currently, the negotiation rounds are being held, but the agenda has gotten tenser and tenser, as the opposing standpoints between the administrations are becoming more evident.
The situation described above calls for a true reflection on how Mexico would look like without NAFTA. Although undesirable, the possibility is there. The truth is that either way, we will maintain human talent and workforce competitiveness. Our natural resources and geography make us a potential meeting point for world trade. Yet, having lower investment certainty levels could have a negative impact on our national development, particularly on the Mexican Energy Model, that has put its bets on capital attraction. So what should we do?
Probably, the best path to follow is to exercise our national sovereignty and capture it in our laws. In other words, we should incorporate NAFTA’s disciplines into our own regulatory framework to avoid depending on the political ups and downs of our partners. If what makes
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D our country reliable is the chapter on investment protection, then the right thing to do would be to transfer that reliability into the national legal framework. Some alternatives to achieve this are:
1. To perform a profound review and update of our laws in this matter and, if appropriate, pass a new Foreign Investment Law that aligns to the current investment protection principles and incorporates the best international practices. 2. To review the national coding for including the free market, investment protection and intellectual property principles in conformity with the general rules of the World Trade Organization.3. To use transparent mechanisms that adhere to the Rule of Law to limit the exercise of administrative instruments related to rescissions, cancellations, expropriations and other mechanisms that generate adverse investment incentives.
Based on the circumstances Mexico has faced throughout its history, it recently decided to
Final Considerations
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create a New Energy Model. Thanks to this initiative, the country has gone from a long tradi-tion of being a closed sector focused on monopolies to an open one focused on collaboration and competition. Mexico has taken the chance to diversify the commercial and operational risks without neglecting the government’s control over the energy public policies or the na-tion’s ownership of its hydrocarbons.
As in any other country with a model of this kind, the Mexican Model is not finished. En-ergy models are dynamic and adapt to the national realities, to the infrastructure, supply and demand needs, and to a wide array of technological conditions that require permanent and ongoing supervision. As the model continues to be implemented, more sophisticated, deep and liquid secondary markets will become part of the picture and will find diverse opportunity areas.
This is only natural in any public policy cycle. At first, the design is put to test as it is imple-mented. Lessons learned in this stage are useful for adjusting those things that are not working as expected and strengthening what has proven successful. Three years after its implementa-tion, this is known to be true. The Model will permanently continue setting the tone for the correct and responsible exercise of public power and the participation of the private sector.
WhoWe Are
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WH
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RE Who We Are
PresidentLuis Rubio
Ex PresidentsEnrique BerrugaAndrés Rozental
Fernando Solana (†)Jaime Zabludovsky
Vice PresidentsClaudia Ávila Connelly
Susana ChacónLuis de la Calle
AdvisorsCarlos CamachoHomero CampaLeonardo Curzio
Luz María de la MoraRosario Green
Eduardo GuerreroEnrique Hidalgo
Julio MadrazoSolange Márquez
Martha Mejía
General ManagerMariana Campero
Finance and Planning Committee CoordinatorTimothy Heyman
Technical Secretary and Legal AdvisorMiguel Jaúregui Rojas
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PEnergy Work Group
CoordinatorsMario Gabriel Budebo
Andrés Rozental
Members
Technical SupportCarla García Franco
Jorge Hernández Amézquita
Eduardo AndradeSalvador Beltrán del Río
Susana ChacónAna María de la Parra
Juan EibenschutzRafael Funes
Arturo García BelloSergio Gómez
Lora Silvia HernándezEnrique HidalgoMiguel JáureguiErnesto Marcos
Aranzazú MartínezPablo Medina
Lourdes Melgar
Ana MoralesIsidoro MoralesMargarita PazosAlma QuinteroTania RabasaFrancisco SalazarErasmo SotoGrant SunderlandLuis TéllezJavier TreviñoMaría José TreviñoJosé Luis UtiegasVanessa ZárateJaime Zabludovsky
Disclaimer
The document herein was prepared by the members of the Energy Work Group. It depicts the position of those who
actively participated in its creation. Several members of the Group provided feedback and suggestions to improve the
document; however the content not necessarily depicts all the members’ standpoint. This document in no way depicts the
institutional vision of COMEXI, which position is neutral and independent.