Events

Energy in Mexico: Oil as a Comparative Advantage and a Strategic Resource?

July 13, 2007 // 9:00am10:30am

On July 13, 2007 the Mexico Institute convened a panel to discuss the public and political debate surrounding Mexico's energy policies, the possibility of obtaining energy reform and the importance of Mexico's oil for the United States.

 Luis de la Calle of De la Calle, Madrazo, Mancera, S.C. began the discussion by stating that oil is a deeply sensitive issue in Mexican politics, in part because it is convoluted by the often conflicting interests of sensitive stakeholders. In order for Mexico's energy sector to develop, two critical issues must be addressed. First, Mexico must alter its skeptical attitude towards development. Second, and equally important, it must address and tackle the concerns of four groups: the teachers' union, nurses and doctors and energy workers—which include Pemex, CFE and Luz y Fuerza—and public employees. While these individuals would be among the principal beneficiaries of the reform, they continue to act as the gatekeepers to achieving it. According to Luis de la Calle, Mexico must undertake structural and pension reform simultaneously if it wished to see progress.

 Jose Luis Alberro of the Law and Economics Consulting Group outlined the four points critical to understanding who needs Mexico's oil. Mexico must recognize that its reserves and production may continue to decline; Pemex's execution capabilities must be assessed since it has not yet shown that it can invest in exploration and production in an efficient and transparent manner; due to Mexico's slow transition to democracy, the current political climate makes energy sector reform unlikely to be successful; and lastly, in the short term, American companies dependent on Mexico's oil should use contracts with performance clauses—authorized in the North American Free Trade Agreement—in order to allow for more investment without having to change the Mexican constitution.

 Pamela Starr of the Eurasia Group noted that while Pemex will continue to face technical challenges, the principal inhibitors of change in the Mexican energy sector are a consequence Mexico's current political structure. Starr asserts that the PRD's unwillingness or inability to negotiate directly with the Calderón government has made obtaining a legislative majority without the PRI's support virtually impossible. PRI leaders are aware of their political muscle and have actively exploited this political fact to its full extent. Furthermore, she noted, public opinion is a key obstacle to energy reform in Mexico with polls indicating that the Mexican public strongly opposes private investment, and specifically private foreign investment, in the energy sector. Starr predicted that any reform of the constitution, even a limited one, would be very difficult to implement, even if the PAN wins a significant victory in the 2009 mid-term elections. Echoing President Calderón's insistence on energy reform, she closed by stating that the best way to advance Mexico's reform agenda might be taking it one step at a time.

The conference report, Oil as a Strategic Resource in Mexico?, is also available.

 

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