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Mexican Congress enters second round of energy reform legislation

A picture of a very large urban city that is powered electrically by many sources of renewable energy.
29 Jan 2014

Since 1938, foreign businesses hadn't been allowed to enter into Mexico's energy sector, especially as it concerned the state-run Petroleos Mexicanos. At the end of 2013, the government passed energy reform that will ultimately effect the way Mexico's oil, gas and electricity industries operate, Oil & Gas Journal reported. While proposals have become laws, it's now up to energy sector stakeholders and government officials to ensure reforms are implemented at a sustainable pace and in a way that attracts foreign investment. Already, Mexico has developed a thriving manufacturing market with international businesses moving production into the country due to the substantial changes the reforms promise to make. At the same time, by opening up relationships with industry leaders and experts from other countries Pemex has its sights set on modernizing and innovating its energy production, as well as research and development operations.

Mexico looks to Brazil as a model
The Economist recently took a look at the strategy Pemex has decided to employ in expanding international relationships. According to the magazine's blog, officials from Mexico's energy ministry visited Brazil to get an inside view of the steps the South American country has taken to augment its energy sector. The Brazilian state-run oil firm Petrobras not long ago constructed a new research and development facility in the midst of a cluster of international oil companies, creating an epicenter of hi-tech testing and exploration. Enrique Ochoa, Mexico's deputy energy minister, said he hopes Mexico can emulate this kind of progress. In a previous interview with The Economist, Ochoa explained Brazil saw a vast improvement in terms of innovation after energy reforms that broke up existing monopolies were enacted in the country a couple decades ago.

One clear signal that international collaboration can lead to improvements is the partnership between Pemex and Royal Dutch/Shell at the Deer Park refinery in Texas. According to Ochoa, this complex is more productive than any of the refineries in Mexico, which suggests the reforms that allow for greater international involvement will breed greater performance when foreign expertise is brought in to help develop the facilities.

Energy sector awaits secondary legislation
Getting to the point where Pemex has the ability to achieve these kinds of goals will depend on the extent to which secondary legislation - with respect to energy reform - gives the oil company greater freedom, The Economist claimed.

The Mexican Congress has set a 120-day deadline to plan out and agree upon this legislation, meaning the energy sector will have a better idea of the direction the country is headed in April 2014. Oil & Gas Journal indicated the most likely result will involve a better understanding of the tax situation facing Pemex. While the reform laws passed at the end of 2013 made it possible for outside energy firms to initiative exploratory and production projects in Mexico, upstream analyst Adrian Lara of GlobalData noted that secondary legislation needs to address how contracts and agreements will apply to these activities. Meanwhile, bidding for access to new oil and gas fields will likely begin in 2015 because of the time needed to prepare regulatory officials and specialists to manage contracts, according to the Economist.

At the same time, the government is working toward establishing energy regulations that will also keep the environmental impact of development at the forefront. The most recent progress made by government and energy officials should provide a promising outlook for businesses hoping to expand manufacturing in Mexico or establish offshore facilities. With greater transparency and reforms aimed at improving access to energy, manufacturers will be able to move production closer to their primary markets more economically.

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