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Analysis

Breakdown of National Content Requirements

Tue, 01/20/2015 - 16:58

As part of the Energy Reform, the federal government took a number of measures to secure the participation of domestic firms and the strengthening of the national supply chain. These measures stipulate that new operators must meet a minimum level of national content, starting at 25% in 2015 and rising progressively to 35% by 2025. However, the nature of this national content requirement has caused certain concerns by an industry that is happy to comply with regulations as long as these are made crystal clear

The Undersecretariat of Commerce and Industry at the Ministry of Economy has broken down what companies need to be aware of. First of all, a specialized unit will be created within the Miistry of Economy to oversee the national content mandate by working on six major areas:

1. Establishing a methodology to measure national content and ensure compliance

2. Collecting information to measure national content for the hydrocarbon and electricity sectors

3. Creating a national registry of domestic suppliers to identify their development needs

4. Creating an advisory board to come up with policies to foster the development of domestic suppliers

5. Starting a fund to support the growth of national suppliers and contractors

6. Designing strategies to help the progress of the Mexican supply chain and to attract investment

Furthermore, the document clearly spells out the sources from which national content can be drawn, namely purchasing goods from domestic suppliers, the hiring of Mexican workers, the contracting of services from local firms, the transfer of technology, training, and infrastructure. These six areas will then be melded into a complex equation to calculate the precise percentage of national content present in the operations of each foreign company working in the Mexican oil and gas sector. For the purchase of domestic goods, this will be the accumulated value of all operations in the Mexican value chain. For labor, the payroll of Mexican workers will be taken into account. For services, the amount of national goods and labor used in the provision of these services will be counted. For training, the value of the training provided to national workers will be taken into account. The transfers of technology section will consider investment made in transferring knowledge and technology to improve the production of goods or offering of services by Mexican companies. Finally, infrastructure contributions to national content will track expenses made in Mexico to improve the country’s urban and rural environment. If a company is found to be defaulting on this commitment, the information will be passed to CNH for it to apply sanctions, although the nature of these sanctions is not clear at present.

Beyond the application of national content requirements, a principal task of this unit will be to establish a supplier development program with two main aims. The first is to create a national registry which will showcase Mexican companies interested in participating in the industry and identifying their development needs. Alongside this registry, the fund will seek to boost the competitiveness of the local supply chain by providing financing schemes and programs to improve training, research, and certification efforts. These will be particularly targeted to SMEs to help them enter the supply chain of major oil and gas companies.