Enrique Peña Nieto
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Insight

The Energy Mindset of Mexico's New President

Tue, 01/22/2013 - 11:20

President Enrique Peña Nieto has been very clear about the fact that an energy reform is coming, and that it is needed in order for the country to develop, and face its most di·cult challenges, such as poverty reduction. Peña Nieto’s emphasis is on a reform that will modernize Pemex, transforming it into a productive company focused on value creation, and making the NOC “a stronger lever for national development.” The energy reform was a key proposal in Peña Nieto’s electoral campaign, and has become one of the president’s signature issues since he took o·ce, as well as being one of the structural reforms agreed upon in the Pact for Mexico. The aim is clear: to increase private investment in the oil sector, which the president hopes will kick-start economic growth in the country.

During the campaign leading up to the 2012 elections Peña Nieto expressed his desire to promote reforms that allow private investment in Pemex, especially in exploration, production and refining. “I am not in favor of privatization, but I am in favor of opening the sector to private investment, while guaranteeing the state’s sole ownership of its resources. Mexico has a great opportunity, as Colombia and Brazil had, among other countries that have made the necessary reforms to modernize their oil and gas industries,” he said during the Mexican Construction Industry Congress in April 2012. During the run-up to the election, Peña Nieto’s proposals focused on making Pemex a modern and competitive company that meets and exceeds international industry standards, chiefly by increasing the use of state-of-the-art technology.

On July 2, 2012 – just a day after the presidential elections in Mexico and before he was declared elected president – Peña Nieto published an op-ed piece in the New York Times in which he mentioned that after the improvement of economic conditions for millions of struggling Mexicans, his priority was to end the polarization that has paralyzed Mexico’s politics, and make urgently needed reforms in the energy sector, and in other areas, impossible. The pivotal moment of change in his party’s attitude towards energy reform came at the beginning of March, when the PRI broke with long-standing tradition and agreed to modify its formal position on the energy sector, in order to provide backing for Peña Nieto’s plan to increase private investment in Pemex.

“The PRI has begun a new era. It has transformed itself in order to be able to transform Mexico,” said Peña Nieto, who closed the party’s two-day national convention in front of more than 4,000 delegates. By changing its formal position, the PRI is paving the way for Peña Nieto to present the upcoming energy reform.

During the 75th anniversary of oil expropriation in Mexico, Peña Nieto reiterated that Pemex is not for sale and will not be privatized. The event was the platform from which to present the six major changes that would modernize the NOC under the PRI’s energy reform. The first is to establish a new organizational structure that makes Pemex more e·cient and transparent; the second is to encourage corporate ethics and social responsibility; the third is to promote green growth; the fourth is to empower local industries; the fifth is to orient investment towards higher value-added activities; and the sixth is to strengthen investment and technological development capability. The President also took the opportunity to warn that the energy sector is facing new challenges that must be confronted, because if current production and consumption trends continue, by 2020 Mexico will develop an energy deficit. “This scenario is very serious because it will limit economic growth and the chance to improve the quality of life of many Mexican families,” Peña Nieto added.

The National Energy Strategy 2013-2027 also reveals the urgency in Peña Nieto’s agenda to push through energy reform, despite the strategy being developed under the existing legal framework. It emphasizes that the transformation of the sector is essential if it is to achieve the administration’s core objectives, which are GDP growth and social inclusion. “If the structural reforms are passed, the country might be able to reach GDP growth of more than 6% per year and become one of the world’s 10 most important economies,” the President said during a trip to China in April, where he witnessed Pemex’s agreement with Sinopec to provide 30,000 b/d of crude oil. Even though the political landscape seems to be shifting in favor of the energy reform, Peña Nieto still faces heavy opposition, particularly from the more radical left led by Andrés Manuel López Obrador, who has threatened to call for protest against what he sees as privatization of the country’s oil resources.