Luis Vera
Independent Consultant
View from the Top

The Importance of Creating Confidence in the Industry

Tue, 01/21/2020 - 17:17

Q: How would you evaluate the general regulatory apparatus in Mexico for the oil and gas industry in matters of industrial safety and environmental performance?

A: There is quite a bit of numeric data, metrics and internal statistics available that can back up new successes in these areas. Shortly after I joined ASEA, there was a meeting that illustrated what was in store. Complaints came my way from every direction during that meeting. Major industry players being regulated by ASEA that attended the meeting said there were constant delays, a lack of personalized attention, bad customer service and overregulation. Six months later, I had a meeting with the same attendees, and their reactions concerning the issues we had six months prior were like night and day. They said their complaints had been fully and appropriately attended. They perceived a stronger working relationship and a more proactive stance in the enforcement of inspection and surveillance measures.

The different administrative units of ASEA successfully eliminated a number of inefficiencies in their internal processes by prioritizing their functions. They have won praise from other institutions, ministries, legislators’ associations and NGOs for their work in transforming ASEA into a more efficient regulator that is finally addressing these concerns. The units are also assisting new companies to comply with regulatory mandates as quickly as possible. For the first time in ASEA’s relatively short history, 98 percent of cases have been delivered on time. This means that the institution is maturing and transforming.

Q: How are ASEA’s most recent activities changing the industry’s regulatory paradigms?

A: Historically, ASEA’s main focus was on operational and industrial safety, which unfortunately minimized the environmental aspect of its responsibilities and scope. Given my background in environmental consulting for the private sector, I was surprised to see that, as regulators, they had a much closer contact with SENER and PEMEX than with SEMARNAT. I have experience in the application of environmental regulations and penalties. Therefore, I began conducting ASEA towards taking a more active role in these types of activities. I hired personnel who valued natural resources as a whole, rather than prioritizing activities from one unit such as PEMEX, to experiment with new techniques of measuring operational impact. The first project in which these methodologies were applied was Dos Bocas. By early December, I was sending inspectors on-site to file reports and sanctioning procedures.

The analysis was based on national environmental laws rather than the hydrocarbon laws derived from the Energy Reform. This analysis was later expressed in algorithms that ASEA developed to generate what was called dynamic penalties, which are penalty fees that, instead of being fixed, change depending on case-specific circumstances and environmental impacts. These dynamic penalties also change with time. For instance, a US$1 million fee can become a US$10 million fee, reflecting the fact that environmental damage might be spreading. An ecosystem may continually degenerate due to contamination until effective action to reverse the situation is taken.

Q: How has ASEA communicated its plans to regulated entities and how have they reacted?

A: Regulated entities have not contested ASEA’s open cases so far. They and their affected communities have so far accepted suggestions and determinations. What has been a success factor in this regard is the agency’s complete transparency when it comes to the process of making these calculations; in particular, how it calculates externalities on a scientific case-by-case basis that is supported and certified by the aforementioned government entities and others such as the National Commission of Protected Natural Areas (CONANP). Institutional backing and underwriting create confidence in their decisions regarding regulated entities. This is also in the interest of these institutions, as ASEA shares with them the extensive volumes of data that were generated through its inspections and analysis.

Luis Vera is a recognized authority in the regulatory processes governing Mexico’s energy industries through his work for Vera & Asociados. He acted as Executive Director of ASEA during the first nine months of the new presidential administration.