Javier Estrada Estrada
Commissioner
CNH
/
View from the Top

Getting Involved in Safety Regulation

Wed, 01/25/2012 - 15:52

Q: Before the creation of the CNH, Pemex was largely self-regulated in terms of its safety and risk management policies. How did the CNH approach the issue of how to regulate Pemex in this regard?

A: Compliance is one of the key issues for any regulator, and when we created the CNH one of the biggest choices we had to make was how deeply to regulate Pemex in order to ensure compliance: either to look at the NOC under a magnifying glass, or to set goals and let Pemex reach them alone. We finally opted for a middle-of-the-road philosophy to regulation, and currently we are working on defining the type of goals that Pemex should be aiming for in terms of safety and risk management.

Q: What are the regulatory challenges specific to Mexico and Pemex?

A: The main difference between Mexico and the US is the number of operators present in the US and the distance between the regulator and the operator. Because the CNH and Pemex are part of the same state mechanism, we have to work hard to avoid a conflict of interest. On the other hand, this state of affairs means we can have a little more confidence in our operator than other countries can have in theirs. We know that Pemex will always strive to obey the executive. Pemex has been in the business for many years, and has effectively regulated itself for this time with no major issues, despite some challenging projects. As a result, we do not feel that we need to be mistrustful of the NOC. Given the challenges the company must face today, we need to develop a new type of confidence in Pemex as a regulator.

Q: How will you build up this confidence in the NOC?

A: We hope that Pemex will demonstrate the strength of their internal training, and that they have processes in place to question their own procedures through a group of experts. We hope that Pemex will show us that they can operate at the same level as international companies, and provide their own registers and results so that we can audit them, or send in third parties to certify their compliance.

Q: What role will certification play as the CNH looks to encourage Pemex to develop more accountable best practices?

A: The regulations the CNH is currently putting in place are very much based on the principle of certification, and this is going to be an area that will evolve significantly in the future. Not only will we be inspecting the structure of Pemex, but also the structure of every procedure, and every norm, to ensure that everything is certified by an expert from a company with a serious reputation. This is something that has previously been lacking in the Mexican oil and gas industry.

This is a lot of activity for a young regulator like the CNH, but Congress has recognized the need to improve regulation across the board in the Mexican oil and gas industry. Soon we will be receiving the budget we need to act on this regulation effectively and bring in the help we need to successfully build a safe and efficient industry.

Q: How does Pemex view the development of an independent regulator?

A: The issue is that we both have to learn to live together. Pemex is full of well-intentioned people that are fully committed to the company. However, they can be sensitive to criticism, and this is understandable since they take their job so seriously. This means that they often react badly to the requests of the CNH. However, the key to this is understanding that we are there to help, to formalize their relationship with the state on a contractual and legal basis. This will also help when Pemex comes to work with more international companies. We have been reviewing Pemex’s files and documentation, and in the coming months we will make our final judgement on the state of this, and how to proceed from there.

Q: What are the main international models that you use to help develop the Mexican system?

A: We have followed the American model very closely, as the Mexican industry is very close to Houston in many ways. Additionally, we have looked very closely at the Norwegian regulatory philosophy. I love the way in which the Norwegian government regulates Statoil – they are more distant than many other regulators, yet at the same time they have managed to build performance-based regulation that is extremely demanding. It has been difficult for the CNH to choose where it should stand in relation to Pemex. Should we be close to Pemex and see exactly what they are doing at all times? The problem with this is that we do not have the capacity or resources to act this way, for the next year at least. As a result, we will have to start with the Norwegian or British model of making the operator responsible for their actions, and encouraging complete reporting, but in the medium- to long-term we want to be close to them, along the lines of the US model.