Sergio Pimentel
View from the Top

Agile Regulation for a Rapidly Changing Industry

Wed, 01/21/2015 - 10:03

Q: What are the main risks of creating a strong regulator in such a short period of time?

A: A major risk could be that the planned timeframes are too tight. Nonetheless, CNH has delivered so far. For instance, the Data Room was inaugurated on January 15, 2015, just as CNH had announced. The information available within the Data Room is of the highest quality, despite the fact that we only had three months to compile it. In order to mitigate the risk of CNH not concluding its tasks in due time, we have designed a plan for human capital growth that seeks to duplicate the number of people working at this institution. Regarding financial adjustments, the Energy Reform established that CNH is to utilize the resources that it has gathered. The income derived from the sale of Data Room licenses will be used by CNH, making it financially strong. We will now work closely with the Treasury to make sure that these resources are available in due time, facilitating the growth of CNH, and allowing us to fulfill our mission.

Q: How do CNH’s relations with institutions such as SENER and the Treasury influence its decision-making processes?

A: We interact with these institutions on a daily basis, particularly as we approach announcements about the different stages of Round One. SENER has drafted the technical guidelines and the contracts while the Treasury has been in charge of the fiscal terms for both the bidding rounds and the contracts. Our relationship with these bodies also changed after CNH’s legal nature was modified. Previously, CNH was a decentralized body within SENER but it is now a regulatory body with the same rank as SENER. The technical and management autonomy given to CNH is clear, with our technical team being tasked with preparing the opinions that are sent to SENER. This ministry then decides the areas that will be presented for bidding, while CNH oversees the process and manages the technical aspects of the contract. Other institutions do not affect CNH’s decisions but actors in the energy sector obviously need to collaborate.

It is impossible for CNH to compete against international oil companies in terms of salaries and benefits. However, one should not minimize the importance of the commitment to public service, which is very strong among many professionals in Mexico. If CNH’s personnel can maintain or develop this commitment, the risk of a jump to the private sector will diminish. Many will find it attractive to contribute to the implementation of the most transcendental reform Mexico has seen in the last 50 years.

Q: How will CNH properly administrate contracts when competing with some of the best legal teams working for IOCs?

A: CNH has been working with the outmost transparency. We are not the only institution involved in the development of contracts, since SENER, the Treasury, ASEA, and the Mexican Petroleum Fund also participate. The checks and balances prescribed by law prevent CNH from handling the contracts on its own, although our responsibility is to manage their technical aspects. Naturally, CNH will face serious challenges especially when the time comes to deal with legal disputes. However, this situation will not emerge immediately and CNH will continue to grow in the upcoming months. We will be ready when the time comes.

Q: How could you reassure people in the industry about the transparency framework applicable to CNH and its commissioners?

A: The law stipulates that meetings between the commissioners and companies can only take place in CNH’s offices, with at least two commissioners being present at all times. If a commissioner acts contrary to the law then the corresponding punishment would be the immediate removal of the commissioner involved from their position. During biddings, all commissioners are strictly forbidden from meeting with the representatives of companies participating in the process. CNH and the commissioners are fully committed to transparency and consider this an essential factor.

The proof of this is that all commissioners decided to publicly declare their assets in December 2014, before the President asked other public servants to do so. The commissioners have actively taken steps to build up great trust in CNH to allow the Energy Reform to move forward without problem.