Last updateFri, 01 Aug 2014 4pm

Foreign firms waiting in wings as energy reform enters home straight

Despite heated opposition from the country’s left-wing, Mexico’s lower house has approved secondary laws (enabling legislation) detailing the implementation of the energy reforms passed last year.

The new laws will end Pemex’s monopoly of the nation’s oil and gas reserves and open energy exploration and recovery to foreign firms.
The legislation now heads back to the Senate for final congressional approval, expected in the first week of August.

Many international firms had been biding their time, waiting to learn exactly how the legal framework surrounding the reforms would be drawn up before committing any investment to Mexico.  The new laws detail how contracts between foreign firms and Pemex and the state-owned power company CFE (Federal Electricity Commission) must be drawn up, as well as their tax liabilities.

While many international oil companies will be licking their lips at the prospect of new deep water drilling opportunities in the Gulf of Mexico, some experts suggest Mexico’s immediate priority is to build new pipelines to increase imports of natural gas to bring down electricity prices and allow foreign companies to build new power generating stations.

Environmentalist groups – including Greenpeace – are vigorously opposed to the legislation, in particular criticizing the potentially dangerous process of fracking, which Mexico is committed to introducing.

Differences of opinion on how Pemex should be constituted under the new legislation threatened to sour the debate on the secondary energy laws.

Some lawmakers were adamant that Pemex should be subject to the same tax regime as private companies, thus levelling the playing field, as well as reducing the federal government’s dependence on the state-owned company’s revenues.        

Although the new laws will overhaul Pemex radically, the company will maintain some privileges, such as being able to make the initial bids on certain energy resources. The company’s large debt is also likely to be written off at the taxpayer’s expense, and guarantees will be given that maintain current employees’ generous benefits, including their pensions.   

The legislation is the cornerstone of Peña Nieto’s reform program, that has included massive changes in Mexico’s education, labor, fiscal and telecommunications sectors.