News Article

View from the Top on Mexico’s Regulatory Environment

Wed, 02/25/2015 - 16:46

Presenter: Guillermo Zúñiga, Commissioner at CRE

Zúñiga opened his talk by stressing that the improvement of services and products in the energy sector is extremely important to the future viability of the sector and to the Mexican economy. In order to ensure a healthy development, the main changes will naturally reduce the barriers to entry for new players. Instead of being concerned about the rule of law or the enforcement of rules, new entrants will instead need look for clients and compete in terms of offering better practices and better products in order to get a place at the table in an alluring market.

Despite this positive opening, Zúñiga stated that any discussion of the Energy Reform must tackle it as a very broad and detailed subject. Among other areas, it seeks to govern both exploration for petroleum and the proper distribution of energy, entailing a wholly new vision for PEMEX and CFE. In articulating this vision, the Reform also has the responsibility of improving the performance, not merely of these two companies, but of their entire industries. Beyond energy markets that each presents subtle and numerous complexities, individual components of these markets, such as upstream and downstream for oil and gas, present challenges of their own. As such, the Energy Reform had to take all these aspects into account, while providing a straightforward guide to the future.

One of the main steps taken was to ensure that an independent economic regulator would stand watch over the energy industry and verify that no monopoly would happen. In this line, PEMEX and CFE were transformed to become “productive enterprises of the state.” To further this level of transparency in SENER, CNH and CRE, these institutions have seen their governance reviewed. For CRE, its seven commissioners are constantly scrutinized and their decisions are all announced publicly on the CRE website. The commissioners are voted on by the Senate, they serve a one-year term, and must all have sufficient technical knowhow and experience to fulfil this position.

Since being created in 1923, CRE has had the responsibility of managing areas that were key to Mexico’s growth. Given this position, Zúñiga explains how the new energy structure was created with a specific role for CRE in mind.

The Commission of energy was created in 1993 and has had the responsibility of managing the areas that Mexico wanted to manage. Zúñiga explains how the energy structure was established for CRE. They have established the legislation to align with the new markets in the sector. But, according to Zúñiga, this is not a duty CRE will take likely. Acting with Mexico’s climate change duties in mind, generators of renewable energy will have to enter into a clean energy certificate program to regulate the sale of the energy they generate.

Concerning natural gas, which has been named as the transition energy source of choice for Mexico, Zúñiga pointed out the major link between the development of natural gas and the country’s general economic welfare. However, for this development to happen, Zúñiga stated that CRE saw it as a priority to foster investment in natural gas infrastructure to boost the number of projects and the volume of gas being made available in Mexico. However, this construction should not happen without central guidance. As such, the government has laid out plans for the building of more pipelines to be centralized, while giving them an open capacity to satisfy the demand for all companies seeking to tap into this plentiful source.
Another reason for such centralization is the prevention of any further monopolies. Zúñiga explained that if the regulations were not made crystal clear as well as enforced, then foreign companies may never trust in the Mexican market and choose to invest elsewhere. As such, CRE and other entities are making all regulations publicly available to increase transparency.

Zúñiga closed with the fact that there is a need in Mexico for more regulators that focus on specific areas of the sector. These should be pro-market but not pro-business and CRE is actively reviewing how such regulators and their sphere of influence should be created