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Analysis

Impact of the Election Year

Wed, 01/25/2012 - 09:17

As Mexican politics and Pemex’s activities are closely intertwined, an election year is always important for the Mexican oil and gas industry. First of all, Pemex’s CEO and Mexico’s Energy Minister are appointed by the President and it is probable that the new head-of-state will choose the incumbents.

The future of Pemex and the oil and gas industry has already been mentioned by all three presidential candidates. The PRI and the PAN contenders have talked about an increase in private investment, which casts a positive light on the possibility of new reforms. The PRD candidate, placed third in April polls, presented a different strategy that includes merging Pemex and CFE and heavy investment in refining capacity. Not only will a new Mexican President be elected in July, but also congressmen and senators. The probability of reform in the next administration depends not only on who wins the presidency, but also on the party configuration within the parliament.

2012 is also the year of the second round of incentive-based contracts and of potential further contracting rounds in Chicontepec and deepwater areas. Analysts have argued that companies might be less interested in these tenders due to uncertainty over what will happen after July 2012. If another energy reform is possible after elections, there may be more incentive for international companies to wait for better opportunities.

Suppliers and service providers that work with Pemex often comment that during election years, very little gets achieved, because the uncertain nature of the political environment impacts the execution capability of the NOC. However, Pemex has ambitious plans for 2012. Whatever the result of the election, it is very likely that the energy sector will experience substantial changes under the new administration.

JUAN JOSÉ SUÁREZ COPPEL, CEO OF PEMEX, ON THE IMPACT OF THE ELECTIONS:

“Whilst it would be impossible for operations at Pemex to completely stop during the transition period following an election, there will certainly be some consequences once again between July and December 2012. We still have not moved past this issue, but we are hopeful that eventually we will be able to. For example, Banco de México is hardly impacted at all by the transition period, and this should also be the case at Pemex. However, before this happens, we will need to move from depending on approvals from various government bodies, and restrict our interactions to a minimum, having a business plan approved once per year. Once this happens, I am confident that everything that currently acts to slow us down during the transition period will cease being an issue. It is much easier to change a company than to change government institutions. Instead of changing the whole industry, let’s focus on getting the Pemex that we Mexicans need. ”