The energy reform: drifting in the deep waters of uncertainty.

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On March 18th, President Peña headed the Mexican Oil Expropriation’s 76th anniversary ceremony in Cosoleacaque, Veracruz. Despite that the commemoration was filled with cheers of PEMEX working staff to high-ranking officers – curiously enough, the loudest praises were aimed at Carlos Romero Deschamps -, the celebration was held in times of uncertainty for the oil industry. The initial enthusiasm due to the issuing of the energy reform in December 2013 has faded away as doubts regarding the content of its secondary legislation remain. In addition, there is also the corruption scandal against one of PEMEX’s largest contractors, Oceanografía. The aforementioned fact may turn out to be a warning sign for several political stakeholders, particularly members of PAN, a key ally for the oil sector’s liberalization. As of now, while the federal government still has not taken actions regarding the secondary legislation, the former party in office has threatened to delay the energy debate; attracting investments is certainly not in the best possible scenario.
Although the energy reform process has been on underway since the end of last year without the need of secondary legislation, it will not be possible to have even a little amount of certainty regarding the potential benefits of the sector’s liberalization without considering a clear set of rules. The Constitutional reform’s transitory apparatus has certainly implemented the way and deadlines of the first stage of its implementation. Thus, the so-called Ronda Cero (Zero Bid Round) is currently taking place, a phase in which PEMEX would have the first option of being considered in the conservation of the exploration and production projects that the as of yet public company might request (this information should be delivered to SENER, the Secretariat of Energy, on March 20th at the latest). SENER, the government department responsible for the allocations within the oil industry in accordance to what has been agreed in the reform, will have until September of 2014 to define which projects PEMEX will develop and which ones will be submitted to a bidding process. The criteria for these decisions are yet to be defined, including procedures and those responsible to implement this stage within SENER. The secondary legislation is the key issue here.
Without taking into account a potential lack of transparency in Ronda Cero – something that would hardly be a positive sign -, it is imperative that contract regime with private entities are defined in a timely manner. In the 4th transitory article of the reform, Congress is provided with the power to establish “the modalities for compensations that the State will pay to its production companies or those private entities in accordance to exploration and extraction activities”. This regulation also states that the deadline to materialize all of the aforementioned expires on April 19th, that is to say, 120 calendar days after the reform has been published. Will legislators comply with this obligation or will they overlook it just like they did with the telecommunications reform’s secondary legislation?
The debate of the energy reform’s secondary legislation has proved to be more difficult than initially thought. As expected, this stage has proved to be the most complex within the process and where several interests appear, ranging from attempts to profit from the sector, avoid being part of corruption scandals (the Oceanografía case is not the first and will not be the last) and to put themselves in the best position within the liberalization of the sector, both financially as well as politically. The ghost that continues to undermine Mexico’s image is its widespread corruption and the fact that the government has not shown a true commitment to fully tackle it. Exhibiting major cases while sustaining impunity leads to greater harm than the loudest of applauses. Perhaps, in an attempt to send a message of zero tolerance to corruption, there are signs pointing out that all is changing… in order to remain the same.


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