Rogelio López-Velarde
Partner
Dentons López Velarde
/
Insight

A Competitive, Healthier PEMEX, Not a Closed Market

Fri, 01/17/2020 - 19:12

Mexico has undisputedly benefited from the Energy Reform and while it is highly unlikely the reforms will be walked back, Rogelio López-Velarde, Partner at Dentons López Velarde, warns that there are ways to throw a spanner in the works. “Limiting CNH and CRE’s autonomy or implementing budgetary constraints would see the industry lose momentum and contracts,” he says. “Subordinating CNH and CRE to the Ministry of Energy would therefore mean the effective end of what the Energy Reform has achieved until now.” Continuity is necessary, but López-Velarde admits it is not easy to predict the new administration’s plans. “Almost all our clients have raised concerns regarding the lack of a long-term vision in almost all the statements made by AMLO’s team,” he says. López-Velarde also warns that a return to the old practices in Mexico’s oil and gas industry is not the way to go. “Every oil and gas project has a long-term outlook, so if the new administration changes the basics of the Energy Reform’s secondary laws, it will end up affecting these projects and jeopardize investor security.” López-Velarde believes that continuity in CNH’s licensing rounds, for example, would enable companies to create economies of scale, which would make them more competitive.

Another important example where continuity will play a significant role is in the downstream sector. “Manipulating fuel prices by government price controls would mean fuel retail companies losing interest in the market and slowly leaving the country, therefore slowing down or even putting on permanent hold many infrastructure projects,” he says. While he recognizes that times of uncertainty are not the easiest for doing business, he says Dentons López Velarde’s global reach will give it the necessary edge in attracting clients. “Since partnering with Dentons in 2015, the London offices have offered strong and significant experience, especially in terms of English Law, which is what covers Joint Operating Agreement practices in Mexico. Combined with a local team specialized in Mexican Law, this gives us a seamless added value specifically designed for the Mexican market and our clients’ needs.” He cites this as one reason why companies such as BHP, DEA Deutsche, Jaguar E&P, Total, Perenco, Ophir and BP have chosen Dentons López Velarde to represent them in Mexico. The firm’s services include working on the design of E&P contracts to make them more bankable and enforceable.

Satisfied with the achievements of the Energy Reform in terms of upstream activities, López-Velarde wants to see new structural changes aimed at expanding the country’s business opportunities. This includes allowing for more competition in the midstream and downstream sectors. “On paper, PEMEX’s monopoly is over but reality shows that this business scheme still exists because the NOC is still the biggest, most important player in the Mexican oil and gas industry,” he says. López-Velarde’s wish is not that PEMEX loses strength but rather that it is allowed to compete in an open market so it can achieve higher levels of competitiveness, not only on the national but also on the international stage.

He mentions the case of Sinopec as an example of best practices for NOCs. “China’s NOC launched its IPO, while it was still under the government’s control. The fact that a share of its capital is publicly traded introduced excellence-oriented business practices into the company,” he says. “If the government’s plans are to control the market and keep PEMEX from entering into free market competition, this would handicap PEMEX’s ability to implement efficiency and institutionalism in its business practices.”