Mexico’s Energy Policy Discourages Foreign Investment

A new report revealed that the Mexican government's decisions regarding energy and hydrocarbons policy discourage foreign investment in the sector. The US Department of State published its Investment Climate Statements: Mexico 2022 report, which indicates that private investors have been discouraged by energy policies implemented in Mexico.

"Foreign players were discouraged when the Mexican government awarded PEMEX the exploitation of a major shallow water oil discovery made by a consortium led by Talos Energy," the report reads. Talos had invested more than US$200 million in making the discovery and is seeking compensation through international arbitration.

Aside from unfavorable decisions for the private sector in oil matters, there are constant regulatory changes in energy policy that prioritize CFE's power production in the electricity dispatch.

President López Obrador's administration carried out major regulatory and policy changes that favor PEMEX and CFE over private market participants. Recent efforts to reverse the 2014 Energy Reform, ranging from administrative modifications to attempts at constitutional reform, increase the uncertainty in the market. These factors "raise the cost of doing business in Mexico," concluded the Department of State.

Meanwhile, the private sector continues to look for new alternatives to make headway by investing in renewable energy and green fuel projects. A recent example of successful private investment is a joint venture with the public sector, through the construction of a second subsea pipeline involving CFE and Canadian company TC Energy, which will provide continuity to the South Texas-Tuxpan pipeline.

The project will require an investment of approximately US$4.5 billion to be absorbed by both companies. CFE will have a 15 percent share of the pipeline, which will gradually increase to 49 percent. This renewed relationship between CFE and TC Energy marks a milestone for future joint projects between the public and private sectors, analysts said.

Carla Medina, president of the Mexican Solar Energy Association (ASOLMEX), sees future opportunities opening up for renewable energies, especially solar. The Mexican government is building the solar park in Puerto Peñasco, Sonora, which opens up the possibility of developing similar publicly-backed projects in the future.

"I do not think we have seen such a rich conversation and such intense interaction between the different branches of the Mexican government and different organizations at the international level on structural, environmental and socioeconomic aspects related to energy consumption," said Medina during the Inter MX Expansión Summit.

To strengthen its energy matrix and improve its energy security, Mexico must promote better conditions for private investment in energy projects. As long as regulatory uncertainty remains, the development of this collaboration will be more complicated, especially with a looming confrontation in international panels between the North American trading partners spurred by changes in Mexico's energy policy.