On Thursday last week, a panel was held at the Instituto Tecnologico Autónomo de México (ITAM) to introduce a new report on the Mexican oil and gas industry, titled “A New Beginning for Mexican Oil: Principles and Recommendations for a Reform in Mexico’s National Interest”. The report was produced after a series of meetings between experts on the sector, selected by ITAM and the Woodrow Wilson International Center for Scholars, which took place during 2012. The main aim of those meetings was to discuss the requirements for a successful and meaningful reform of the laws governing the country’s oil and gas sector during the next Mexican presidency.
During the panel held last week, which was moderated by Duncan Wood, Director of the Mexico Institute for the Wilson Center, five of the 23 experts involved in the report discussed their views on the current state of Pemex and the energy sector in the country, giving contrasting proposals based on their definitions of successful oil and gas reform. David Shields, Marcelo Mereles, Fluvio Ruiz Alarcón, Miriam Grunstein and David Enriquez talked about the importance of handling this reform as a reform of the oil and gas sector, rather than the energy sector as a whole, and stressed the need to define the roles of the state institutions involved in the oil and gas sector, so that responsibilities are correctly divided to fit any new reforms.
The talks preceding the publication of the report aimed to define principles to guide future oil and gas policy, based on the current circumstances of the country. Key to the understanding of where the Mexican oil and gas industry stands today is understanding the implications of the 2008 energy reform: the ideas that eventually did not make it into the final reform, and the evolution of the sector since the reforms were introduced. One of the key points that was made was that although some issues have still been left unaddressed since the 2008 reform, there are a number of new issues that have arisen since that time that also need to be dealt with in any new reforms.
One of the main discussions during the panel was about the changes that a new oil and gas reform needs to deliver. All the participants in the debate agreed on the need to modernize Pemex’s operating procedures in order to improve efficiency, and that the company’s current legal status hinders its development, since its budgetary restrictions does not allow it to focus on all the areas it needs to as a company. The panelists also agreed that development projects should focus on improving efficiency in the areas where the NOC is currently lacking.
Fluvio Ruiz Alarcón, one of Pemex’s Professional Board Members, espoused the view that the three most important negative influences on Pemex today were the influence of Mexico’s Finance Ministry on budgetary decisions, the lack of investment in infrastructure and its effects, and finally the different ways of looking at Pemex’s role in Mexico: as an industrial leader or as a driver of Mexico’s economy.
Miriam Grunstein chose to focus on the problem of inconsistency in Mexico’s historical evolution, and the way that this is reflected in the country’s constitution. “These constitutional contradictions work as the framework that guides state policies, especially those in reference to the state-owned company,” she said at the panel.
David Enríquez, Senior Partner at Goodrich Riquelme Y Asociados, suggested the creation of a model with a new operator. “In this new model, the government would need to have a stake in its operations, as much as the investors and the public in general should have a say on the company’s decisions.” He stated that well-defined rules would be needed in order for this plan to be successful, not least in order to raise the capital that would be needed. “This way, with explicit and transparent rules, the country would be the founding partner of this new society built for oil and gas progress.”
The message behind this debate was to reiterate the importance of Pemex for the development of Mexico. The link between Pemex and the Mexican economy has always been a close one, but now that the government has an opportunity to redefine the role of Pemex in the Mexican economic environment, it must decide exactly how much it wants to rely on the oil and gas sector as a future contributor to Mexican public finances, whilst at the same time deciding what model it would like Pemex to follow as it shapes itself for the coming years. Getting the balance right between these two issues is critical for both Mexico and its NOC.