Mexico’s Energy Reform is widely understood as a group of measures intended to ramp up the country’s ever-declining oil production, but it does not limit itself to this. In line with the authorities’ aim to reduce the Federal Government’s dependency on oil revenues, the reform also implemented an oil fund that would allow control over these revenues. This dependency has gone down to 16% in 2015, from 40% in 2012.

Mexico’s state-owned petroleum fund for stabilization and development, better known as Fondo Mexicano del Pétroleo para la Estabilización y el Desarrollo (FMP) was designed by the Ministry of Finance and came into existence on 30 September 2014. The actual operations of the fund, however, run by Banco de Mexico, only started on 1 January 2015. More than just a way to manage the Mexican state revenue from oil and other hydrocarbons, it also serves as a means to receive and make payments on the assignment of contracts for exploration and production. The fund is meant to receive 4.7% of the country’s GDP on an annual basis, which would then be divided in order of priority between the Budget Revenue Stabilization Fund, the Federal Entities Revenue Fund, the Hydrocarbons Extraction Fund, CONACYT-SENER, and the Federal Treasury. Any surplus would be saved for future generations.

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The Mexican Petroleum Fund came into operations in Jan 2015. Source: FMP

Although this was a forward-thinking initiative with a widespread and long-term potential impact, it did not come at the best of times, as the beginning of its operations coincided with the sharp drop in oil prices that we are still experiencing today. Revenues from the oil and gas sector dropped, and as such, so did the portion intended for the fund. Instead of receiving 4.7% of GDP in 2015, the fund only saw 1.8%, according to the Economic and Budgetary Research Center (CIEP). THE FMP’s page, however, claims revenues of 2.2% of GDP, equivalent to approximately US$22,034. Héctor Villarreal, Director General of CIEP rightfully said that the current price of a barrel of oil and current production levels would not allow the generation of long-term savings from this revenue, as these can only come into place if the fund receives more than 3% of GDP. “The moment the oil prices collapsed, so did the FMP plan,” he poignantly states.

It is a sad claim to make that Mexico wasted a possible “boom” fueled by commodities, but it may just be true. Experts are saying that Mexico’s lack of savings from the petroleum industry is due to poor planning and organization from the Federal Government, which wasted the surplus of income it had for years, rather than taking advantage of it. Indeed, it appears that the fund comes slightly late; today’s successful oil and gas funds were created before 2010, allowing them to take advantage of the commodities’ boom.

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Could the private sector save the fund? Source: El Semanario

Julio Santaella, Executive Coordinador of the Fund, sadly asserted that everything points toward 2016 being just as complicated, and this will not change until the market begins looking upward again. The Mexican mix currently stands at a low of US$26.34. Although we can expect more revenue to be generated by the private sector, its operations will not render results until 2017, according to the government, or 2023, according to the private sector. However, will it be better late than never?

 

Sources: El Contribuyente, Reforma

 

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