Mexican SMEs Key to Competition with Canada, USBy Cas Biekmann | Tue, 09/08/2020 - 13:37
Q: What role does COMENER play in Mexico’s energy sector?
A: We work to promote infrastructure projects that contribute to Mexico’s energy security. We encourage initiatives from the public and private sectors and from NGOs. Our goal is to generate a consensus and to fuel judicial certainty and regulatory and technological development. COMENER concerns itself with the entire value chain of the oil, gas and energy sectors. The council includes around 20 confederations, chambers and associations.
We are convinced that technology is crucial for strengthening and growing the energy sector. Some of the core goals of the council are to attract investment and create a level playing field on which new players can participate and compete with state production companies. This is the only way that we can achieve reduced energy costs and oil prices, a core goal for the fourth transformation. We firmly believe that SMEs play a fundamental role in this. These companies contribute by providing 70 percent of jobs in Mexico. However, in the energy sector they are experiencing a crisis. Companies that are reliant on one client, such as PEMEX or CFE, are vulnerable. Our goal is to help these companies to grow further by helping them gain access to big private players, both national and international. We also converse with and receive support from the directors at PEMEX and CFE.
Furthermore, it is crucial to have a unified vision in the energy sector between the public and private sectors, academia and NGOs. This has allowed the energy sector in other countries to achieve a very high degree of maturity and has boosted competition. Mexico needs a diversified energy mix, in which all sorts of renewable and traditional energy sources have their place. For instance, gasifying the south of the country would attract development and reduce the wealth disparity with the north, which is already benefiting from cheap energy prices.
Q: What have been COMENER’s recent success stories?
A: One of the most recent successful initiatives of the council was our acceleration program. The help of the Ministry of Energy and CONACYT was a fundamental part of its success. For this initiative, we selected 19 projects to support. We went to Texas to join the other 25 participants in the program right about when the pandemic started, which turned into a real challenge. In the end, we were able to meet our goals on time. We even reached the final 10 of the Startup Texas competition with two of our projects. The winner receives US$100,000.
Many of these projects had a Technology Readiness Level (TRL) of close to 9, meaning it is already pretty much proven in the operational environment, although others were still in either the research or the development phases. They were developed at UNAM and IPN or by institutes such as IMP. After the success of this initiative, our goal is to do another round for 2020-21. We have already launched a platform where entrepreneurs in the energy sector can apply. The initiative comes from Bill Gates’ Mission Innovation (MI), which seeks to boost technologies that help combat climate change. Over 20 countries participate in the project, so it is a good opportunity to bring Mexican technology into the limelight in other countries.
Q: What could Mexico do to further to boost its human capital in the energy sector?
A: As the pandemic took root, the global economy started to see repercussions. In the case of Mexico, job certainty and job availability have certainly suffered. Many talented people are left without work. Global estimates predict that 100 million people worldwide will drop into poverty as a result. Companies will go bankrupt on a regular basis. Once the current health emergency passes, we might see a social and a security emergence arise as a result. This is even more likely in a developing economy such as Mexico. COMENER does not think it is helpful to consider this issue with arms crossed. We must move forward and take steps to reactivate and boost our economy.
One of the projects we launched in this regard with Mexico City’s government is aimed at energy supply for SMEs and 200 vulnerable living areas in the city. Mexico City is quite active on this front and seeks to drive clean energy and infrastructure, so we were able to find synergy with the city’s government. Every state governor should get down to work when it comes to planning economic reactivation, rather than waiting for the federal government, PEMEX or CFE to come to solve their issues. It is not the federal state’s obligation to arrange energy supply. With the Energy Reform, the sector opened up in this regard. We have had conversations with governors to help them analyze their resources and plan an adequate energy mix with additional infrastructure through their own energy agencies. These strategic projects can then be connected with CFE and PEMEX. Nonetheless, we need to start with local and regional development and then move to the federal level. At the end of the day, foreign companies might choose another location if Mexico cannot supply them with adequate energy.
Q: What does COMENER see as the private industry’s role in Mexico’s energy development?
A: It is clear that PEMEX and CFE alone cannot cover Mexico’s vast need for energy. The investments required go into many millions of dollars. We need to find a win-win business model to develop the infrastructure Mexico needs. With COMENER, our goal is to boost the area of legal certainty so that we can attract the needed investment while keeping social and environmental factors in mind. Indigenous communities need to benefit from this project development as well, for instance.
One major opportunity we have identified lies in the area of oil and gas storage. As the sector knows, we only have one to three days of storage available in case of an emergency. In countries such as China or France, storage spans up to three months. COMENER is working to attract investments of around US$4 billion to solve this issue and build storage terminals and pipelines. SENER’s goal is to create a minimum of five, nine and 13 days of storage by 2020, 2022 and 2025, respectively. It is a big challenge, so both the public and private sectors would need to get involved to meet these goals.
Q: What will be the council’s main objectives for 2020-2021?
A: One of the challenges ahead is the USMCA treaty. Mexico is a part of the world’s biggest energy market: North America. However, the inequality we have with the US and Canada is enormous. If our SMEs are to compete with their counterparts there, we would need to greatly enhance access to credit in Mexico. Compared to the rest of North America, we are at a disadvantage because of this lack of access. Therefore, we need to foster it and drive national content, albeit responsibly. In Brazil, for instance, rampantly boosting and protecting national players has actually worsened inequality. The difference in costs due to a lack of competition is directly covered by higher electricity and gas prices, meaning it is paid by those who have the fewest resources. We need to promote Mexican companies all across the supply chain and bring more companies into it. With USMCA, competition is crucial for Mexico. To be successful, we must bring down our energy costs. If Mexican SMEs want to provide services to players outside of PEMEX and CFE, they will need to meet high international standards. This is no small challenge. COMENER needs to assist with training and preparation, while working together with the authorities.
Another topic we will be working on quite a bit is PEMEX. The NOC is a key company for Mexico, and needs to evolve. Compared to other NOCs, PEMEX does see Mexico’s vast reserves reflected in its balance sheets. Financial health is crucial for the company. It should produce more and generate more refined products. Its logistical area should be on the level of CENAGAS, which does not absorb any resources but generates them. These resources can then be used by PEMEX to generate more own products, meaning Mexico can import less and save its resources. It is as if Mexico produces its own oranges but sends them to the US to make juice. Why not equip our own refineries to do so?
The Mexican Energy Council (COMENER) specializes in promoting infrastructure, technology and regulatory projects, as well as the innovation of Mexican human capital, based on open dialogue between private, public and social sectors.