After PEMEX sent its petition to SENER to keep 83% of 2P Reserves and 71% of its total productive assets on March 21st of this year, President Enrique Peña Nieto has now pushed forward the announcement of the final decision based on the now productive enterprise of the state’s technical, financial, and operational capabilities. According to the deadlines established by the 6th Transitory Article of Mexico’s unprecedented Energy Reform, SENER has until September 17th to release its evaluation. However, yesterday morning, the President expedited the process.
Fast-forwarding radical changes to the country’s legal and fiscal framework are indeed a feat, however, one that must be handled with care. In an op-ed published today in the Reforma newspaper, according to David Shields, Director General of Energía A Debate, the extent of the currently enacted reforms is naturally complex. For this reason, he suggests that if these extensive changes are rushed, undesirable results may be the outcome. Moreover, he stresses the importance of regulation and the definitive character of the institutions soon-to-be involved in what is expected to become a domestic oil and gas industry with international best practices. “CNH has zero experience in contracting. It is not ready to handle rounds of extensive technical complexity nor does it have the necessary rules to carry them out. It will have to refer to the Civil Works Law, which involves the same requirements that PEMEX got rid of a while ago after considering them unsuitable for licensing hydrocarbon assets,” Shields highlights.
During yesterday’s speech at the Palacio Nacional, President Peña Nieto declared that the candidate list for CNH’s prospective commissioners will be sent to the Senate before the end of this month. Apart from this, the definite structure of the Mexican energy industry’s decentralized control centers, CENACE and CENAGAS, is also scheduled to be delivered before the end of this month. Additionally, the proposed creation of an entity in charge of the safety and environmental concerns of oil and gas operations, ANSIPA, is yet to be established. President Peña Nieto has vowed for its creation after a 90-day period, thus setting a date for its full-on release by November 3rd, 2014.
The Mexican Petroleum Fund will be established by September as a means to collect hydrocarbon production profits to be allocated directly to social and economic development programs. The country’s earnings from this industry are expected to be utilized to boost the country’s economy. There have been initiatives similar to this one; however, none have been this extensive. Transparency has always been an issue as these funds are distributed. The lack of mechanisms to verify the entire paper trail of the funds, encompassing the receipt, management, and distribution of these has often resulted in “misplaced money”.
The proposed new fiscal regime for PEMEX and other operators points out that the SHCP will handle this issue by ensuring transparency throughout the entire earnings process from hydrocarbon production in the country. According to the new framework, incoming royalties and other fees paid will be reported to a selected technical committee comprised of four independent members apart from SENER, SHCP, and the Mexican Central Bank.The appointment of these autonomous representatives is key to this fund’s innovative nature, which may serve as a truly transparent approach to public finance. According to the President’s speech yesterday morning, the candidates will be proposed this month.
The Mexican oil and gas industry has been relatively fixed and unalterable for over 70 years, headlining PEMEX as the sole operator of the country’s hydrocarbon assets. Imagining that more than seven decades of chronic conditions in Mexico’s energy sector can be changed in less than a year is truly an extraordinary attempt. Pushing a reform such as the one finally agreed after its initial proposal that would meet the requests of the PRI and PAN in such a short amount of time is truly inconceivable when compared to common Mexican procedural timelines.
The current administration has got a much at stake and plenty of work to do. The next months will surely deliver results; it is just a matter of how well-defined their consequences play out.