PPPs: A Strategic Pathway for Mexico's Energy Sector

The Mexican energy sector is in a process of assimilating regulatory changes. On the one hand, the government has defined its strategic plans in electricity and oil and gas; on the other hand, the private sector seeks to understand the new legal framework that, while allowing investment, also conditions to some extent its participation.

In 2018, we experienced a paradigm shift: even though the new government was unable to pass new reforms, it did de facto halt the advance of private initiative in the energy sector by complicating permitting, canceling rounds, and focusing on helping state-owned companies. The change of government in 2024 (now with a majority in Congress) allowed reforms to finally be approved in March 2025, and subsequently the secondary laws (in October 2025). Thanks to these new laws, PEMEX and CFE are now state-owned companies with market dominance, and SENER (Energy Ministry) is the authority in charge of planning the energy sector. The good news is that private investment is still possible, and highly needed, but it must now be aligned with the federal government's strategic plans.

In relation to potential investment in the sector today, we have mixed signals: the growing energy demand requires new and massive investments, but state dominance and regulatory rigidity pose uncertainty. The challenge, therefore, is also strategic: to find the balance between sovereignty and viability.

The current regulatory framework, considering the recent issuance of secondary regulations to previously enacted laws, while allowing private investment, is limited by the alleged predominance of PEMEX and CFE and eventually because mixed contracts can be a good bridging vehicle, but more attractive alternatives, such as licenses or strategic alliances, are required to access greater investment, Otherwise, it will be difficult for operators with experience and technology to be sufficiently interested. It must be taken into account that today, Mexico's energy investment projects compete with other countries where the legal framework and the profitability may be more attractive.

Government preference is implementing the so-called “Mixed Contracts." These can be useful to increase production in mature fields or develop certain infrastructure projects, but they seem very limited, for instance, for unconventional reservoirs or even deepwater, where profitability and risk require more flexible schemes, such as licenses, partnerships, or farm-outs. This is why Public-Private Partnerships (PPPs) will become relevant to maximize the energy potential.

But what is required for a good structuring of an efficient public-private partnership?

• Alignment with energy policy. First and most importantly, the private sector must ensure its key targets are within the boundaries of the energy policy, bearing in mind that strategic planning is now imposed by the government.
• Reliable legal framework. Most of the new rules and regulations are already in place, but still require more analysis. However, we can say that we already have a legal framework that allows investment. The degree of certainty will depend on the first contracts, and a fast-learning curve.
• Complementarity of capacities and resources. We must take advantage of the experience and technology of the private sector, together with the access to infrastructure, permits, and regulation of the public sector.
• Sustainable Finance. Financing models that provide long-term viability must be developed, and payment mechanisms by PEMEX and CFE must guarantee project flows without delay. Otherwise, this is a point that can be a deal-breaker in many cases.
• Innovation. Consider incorporating advanced technologies and lessons learned in other countries to improve operational efficiency, reduce costs and risks, and increase competitiveness.
• Social. Considering that today the concept of “Energy Justice” is a key element of energy policy, partnerships must ensure real benefits to communities, not only during the construction phase of a project but throughout its life.
• Flexibility and adaptation to the environment. Adjustment mechanisms must be considered in the face of market changes, technological advances, and government policies to ensure project continuity.
• Transparency. Clear decision-making mechanisms must be agreed upon, with transparent processes that foster mutual trust.

In an environment of big challenges and opportunities, PPPs can be a key to sustainable development, facilitating investment and modernizing the energy infrastructure. Success lies in long-term commitment, collaborative approaches, and the ability to generate shared value.

Next, let's analyze the main risks facing PPPs in Mexico:

• Regulatory: Potential changes in energy legislation, unclear regulations or regulations subject to interpretation create administrative hurdles and delays.
• Bureaucracy: Getting permits is complex and subject to delays. Lack of coordination between government agencies can also generate exposure and cost overruns.
• Financing: Banks or investment funds provide finance only when several conditions are met, including a suitable legal framework, commercial conditions, and operational responsibilities, among many others.
• Compliance: Potential unilateral non-compliance with contractual terms increases the risk of early termination or forced renegotiations with disadvantages due to government decisions.
• Political: Changes in government positions can challenge agreements and also impact social support for projects or environmental issues.

The energy sector today requires a high level of pragmatism. While the new energy policy aims to maintain control, it also makes private investment possible. Relevant companies can increase the potential for the development of key projects and to establish public-private alliances that essentially comply with the new regulatory framework, but which can also have a sufficient level of flexibility to mitigate risks and guarantee investments in the long term.

Mexico has significant challenges in terms of legal certainty for private investment in PPPs, where strategic planning and rigorous risk assessment can mitigate impacts. Companies interested in participating in public sector partnerships should prioritize contractual security, operational control, and collaborative relationships to ensure investment returns and long-term viability.