Hydrocarbon Law: An Obstacle for Mexico’s Economic Development

The Mexican Institute for Competitivity (IMCO) states that the Hydrocarbon Law, which was recently approved by the Chamber of Deputies, will have detrimental effects on the Mexican economy, reports Expreso. President Andrés Manuel López Obrador’s administration claims that the reform is a vital step to rescue PEMEX from bankruptcy but IMCO believes it will cause problems to the local oil market and to users.

"The Reform entails negative repercussions for families and the entire Mexican productive sector, whose access to basic inputs such as gasoline, diesel and natural gas, among others, would be interrupted when moving production, processing, transportation, storage, sale, import or export of these inputs from the private sector to companies like PEMEX. Moreover, PEMEX’s financial statements show their serious operational and administrative inefficiencies," IMCO explained, according to El Universal. PRI Deputy and former Director of CFE Enrique Ochoa warned that the initiative is unconstitutional and other experts from different parties agree with him, reports MBN. 

José Medina Mora Icaza, President of the Employers Confederation of the Mexican Republic (COPARMEX), also told Forbes Mexico that the Reform is unconstitutional as it affects one key aspect of a healthy economy: free competition. “To strengthen the Federal Electricity Commission (CFE) and PEMEX, […] improvement does not come from removing competition, but greater competition,” said Mora. As the reform is unconstitutional, many companies will go to the Federal Judicial Power to seek legal protection from the law, Medina Mora told Forbes Mexico.

Another aspect that affects the future of the Mexican economy comes in the form of private investments, both foreign and national. The President of the CONCAMIN Energy Commission, Régulo Salinas, told Milenio that the reform discourages any private investment in the entire hydrocarbon chain, from storage to processing and commercialization as the reform creates bigger restrictions for future investors in the area. This is problematic as it translates into fewer options from where consumers and companies would be able to acquire oil. In economic terms, this makes demand much higher than supply increasing oil prices considerably. Moreover, the reform sends a troubling message to current and future investors, explains Mora: “There is a lack of legality as the rules of the game can change when investments have already been made.”