David Penchyna
President
Energy Commission of the Senate
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View from the Top

Mexico to Recover Its Energy Self-Sufficiency

Wed, 02/19/2014 - 14:51

Q: What were the main arguments that allowed PAN and PRI to find support for the Energy Reform?

A: Political timing was crucial to the relatively fast approval of the constitutional reforms regarding energy. A similar in-depth initiative to the Energy Reform that was recently approved was presented in 1998 but the President was unable to get it passed. In other words, the arguments in favor of the Energy Reform had been on the table for at least 15 years. However, the political conditions changed over time. An element that worked in favor this time was the Pact for Mexico (an alliance between PAN, PRI and the left-wing PRD to facilitate the passing of reforms; the PRD pulled out of the Pact in November 2013, citing disagreements over the Energy Reform). Another decisive element for the Energy Reform’s approval was the ratification by Congress of the National Energy Strategy 2013-2027. Its approval in early 2013 set the tone for a precise diagnosis of the consequences Mexico would face if an in-depth Energy Reform was not approved. It was clear from the outset that the 2008 Energy Reform did not go far enough, showing the need for a constitutional reform that opened up the energy sector and granted legal certainty to potential new investors.

Q: Which are the main benefits of the Energy Reform for the development of the renewable energy sector?

A: The opening of the energy sector to private investment places the focus on fostering renewable energies. Mexico’s energy transition away from primary energies such as hydrocarbons and associated products will enable to speed up the move towards renewable energies. Mexico has enormous potential for these resources, which it can turn into a competitive advantage at a global scale. Additionally, the reformed Article 25 of the Constitution mandates the creation of the National Industrial Safety and Environmental Protection for the Hydrocarbons Sector Agency, which will be part of SEMARNAT, to achieve a balance between productivity and sustainability.

Q: How will the secondary laws effectively integrate renewable energy sources into the Mexican energy mix and help to reach emission reduction targets?

A: Contrary to what is being said, there will be no surprises in the drafting of the secondary laws, nor will there be any small print. The content of the secondary laws is marked and bound to the reforms of the three constitutional articles and 21 transitional articles. These clearly mark the general sense of the secondary laws, which will be discussed and probably approved during the first period of Congressional sessions of 2014. These dispositions require the strengthening of the existing regulatory agencies, such as the National Hydrocarbons Commission (CNH) and CRE. In this same direction, the Energy Reform points towards the transformation of PEMEX and CFE into productive public companies, that will no longer be subject exclusively to public finance needs. We need PEMEX and CFE to become companies that follow market behavior in terms of investment, current expenditure, and the development of human talent. These goals can be achieved in a relatively short period with the autonomy given to these companies by the recent reforms.

Q: What challenges does CFE currently have to overcome?

A: CFE’s goals should be: promoting productivity and competiveness, working on lowering energy costs, facilitating the development of renewable energy, and the transparency of its activities as the institution responsible for the country’s power resources. The reform should make changes while secondary laws will facilitate these objectives by giving CFE efficient and modern normative instruments that will help overcome those challenges.

Q: How will the Mexican power generation sector look five years after the Energy Reform?

A: With the achieved reforms and their secondary laws, it is estimated that in five years, the country will double its current production of hydrocarbons while fuel oil for power generation could have been totally replaced with natural gas and other primary energies. At the same time, in five years, close to 30% of the national energy mix will come from renewable resources. These figures mean much more than a quantitative change. It represents a qualitative transformation in Mexico’s production and energy consumption, accomplished over a relatively short timeframe, in which the country will recover its sovereignty and self-sufficiency concerning primary energy sources.