Leonardo Beltrán
Undersecretary of Planning and Energy Transition
Ministry of Energy
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View from the Top

Security and Economy Pushed the Energy Reform

Wed, 02/24/2016 - 09:33

Q: What pushed the government to undertake an energy reform, and what would have happened if this reform had not been passed?

A: We carried out some diagnostics at the beginning of this administration, and we decided to include all the stakeholders in this endeavor in order to reach a consensus regarding the energy sector. Firstly, we saw that the production of oil had reached a peak in Cantarell in the year 2003-2004. When examining the graph of public investment and production of oil and gas, we noticed that the investment curve goes up, with a subsequent downward trend in production. This gives us the impression that public investments are not enough, and in order to develop other resources for a diversified energy sector, we needed private investment. As a result, we had to generate optimal conditions to attract private investors for the development of the energy sector.

If there had been no energy reform, we would have found ourselves in the position of having to import gasoline, petrochemicals, and even crude oil. Eventually, the costs of energy would have increased and the logistics of importing and the infrastructure for importing capacity would have raised costs even more. Manufacturing hubs would have had to be relocated to other markets to capitalize on better conditions, and Mexico would have become a net importer of energy even though the country has plenty of resources.

Q: Why did the government decide to open the energy sector to private investment?

A: We agreed as a nation that the energy sector should be a lever for economic evolution. The goals were designed to democratize productivity and promote growth, which is exactly what is reflected in the National Development Plan and the sectorial programs that were generated by this plan. Given the chosen trajectory, the public sector was not going to be the only responsible party; this required a larger effort with the entire market contributing to the risk management aspects of the initiative. The Reform creates the conditions to match and align incentives, and create opportunities in other markets that were absent when the public sector was the only driver of growth in the energy sector. In terms of production, we have the timeline published already. In the oil and gas sector we are looking for the opportunities and the portfolio for harvesting the resources and generating growth. We have also set up the conditions for new participants in the electricity sector to come in and develop both conventional and unconventional renewable resources. This will create markets and foster regional growth, as investors will come to different states where the resources are located. We are basically generating the conditions to make Mexico an attractive investment destination and create employment opportunities.

Q: How will the Ministry of Energy ensure that the transition to renewables goes as smoothly as the shift to natural gas?

A: The sectors in the energy industry are at varying stages. The oil and gas sector is well-established, yet the renewable energy industry is generally in its infancy on a global scale. In Mexico we have both renewable energy sources and natural gas. It is not a matter of one source or the other; it is about creating a harmony of natural gas and renewables in order to meet the energy needs of the Mexican population. The Reform aims to ensure that the portfolio is completely diversified, so we should not neglect the country’s natural resources.

Q: In what way has the creation of clean energy certificates promoted the entry of new players into the Mexican energy market?

A: We have created a market with equal and fair conditions for all actors. Given the state of development of the traditional energy industry and the renewables industry, we have created CELs, the point of which is to level the playing field for new actors entering the market. Egalitarian conditions and a market with CELs makes Mexico a highly attractive renewable energy industry in which to invest. Since the externalities of using certain fuels will be taken into account, there will be a punitive fee for using traditional fuels, which will further foster equitable conditions for investors and developers. Players are obliged to present their certificates every three years. This gives companies the chance to measure the number of certificates they need, creating the incentives to make sure that the rules will not change and that the playing field is truly fair and even.