Juan Pardinas
Montserrat Ramiro
Director of Energy Projects
View from the Top

New Roles for Established Players

Mon, 09/01/2014 - 15:53

Q: What should CNH’s specific functions be under a new regulatory scheme?

JP: Colombia has the Ministry of Energy and the ANH, equivalent to Mexico’s CNH, so it should not be that tough to integrate them. Mexico even has the right scheme in place, CNH is a direct part of the structure of SENER, but it has its own policy agenda, to maximize oil and gas revenues for the Mexican state. CNH should conserve a very simple mandate, just like the Bank of Mexico has the mandate to protect the value of the Mexican peso and prevent inflation. Judicial certainty plays a huge role, not just for investors, but also for the shareholders and stakeholders: the Mexican public. CNH must be an institution that is grounded on credibility and legitimacy, allowing the public to trust that it will play its role well and maximize revenues from the oil sector.

Q: How should the regulatory framework address the safety concerns surrounding the deepwater and shale activities?

MR: As long as the rules are clear, companies can live with very strict environmental, safety, and health policies while remaining profitable. This happens everywhere else in the world, so I do not see why it should be different here.

JP: This raises a second mandate for CNH. It must guarantee that the investments and exploration and production processes are aligned with sustainable operating standards and the long-term welfare of the communities living in proximity to oil and gas fields.

MR: SEMARNAT has a very close relationship with PEMEX. However, we will soon have a more open environment, meaning we need more transparency about such matters. It is currently difficult for the agencies to regulate PEMEX effectively since its size dwarfs the two regulatory agencies: PROFEPA and CNH. With more players on the scene, a more balanced relationship will be created between the regulatory agencies and the regulated entities.

Q: What needs to change first, the scheme under which the regulators work, or PEMEX’s culture of accountability?

JP: The regulatory scheme must change first as PEMEX will not change without alterations to the institutional design. Regulators need to have enough authority over all players in the market, PEMEX and private companies alike, with the right incentives.

MR: The creation of new regulatory offices is not needed, the existing ones just need the right leverage to do their jobs. Currently, they are outmatched by PEMEX in terms of budget and institutional size. Also, while PROFEPA does have the ability to sanction PEMEX, CNH still does not. This is another aspect that can be corrected.

Q: How should STPRM’s role change within a modernized, productive PEMEX?

MR: If the Constitution is changed, it makes no sense for the union to continue playing the same role, especially given the fact that new companies will enter the market. A union for petroleum workers is fine but it cannot have the current role in PEMEX’s strategic decisions. It has no place there, this does not happen in the rest of the world. No oil company board has union representatives shaping its strategic decisions.

JP: The big challenge facing the union in the future is to transform itself from an organization focused on collecting its dues to a body with the purpose of defending the labor rights of oil workers. Such a metamorphosis would imply institutional, cultural, and incentive changes for the workers. It is not going to be easy, but in a more competitive sector, all of PEMEX’s workers will have more alternatives to develop professionally. In the current energy sector, it is difficult to find a job in the private sector, due to the monopolies of PEMEX and CFE. All that will now change.

Q: Would a more market oriented, productive PEMEX help attract world-class professionals in a more open market?

MR: Naturally, if a larger and more effective energy sector is in place, it makes sense from a business standpoint to be a petroleum engineer. It becomes wise to make an educational investment to obtain that degree, since graduates will see opportunities to have a decent, well- paid, and relevant job in the sector. PEMEX is currently the only option and has long been stagnant in terms of innovation and not necessarily conducive to challenges in terms of professional achievements.