Infrastructure and Investment: Cornerstones of PEMEX’s Future

Strengthening PEMEX and increasing Mexico’s oil production are among the central goals of the López Obrador administration. Providing the legal certainty that will lead to robust investment in infrastructure is key to achieving these goals, says Irene Hernández, Energy Leader at PwC. “Mexico is competing against many oil and gas countries. To gain an edge, it must provide as much stability to the market as is in its power to do. In today’s world, trust is critical.”

Hernández says there are a number of key elements on which legal certainty must be based. First, a clear policy should be put forward to enable the private participation of operators and suppliers, some of which could partner up with PEMEX. This policy must be linked to previous efforts and oriented to a holistic vision of energy supply and usage. Second, the rule of law must be enforced so as to ensure the continuity of private investment. Third, it is necessary to produce regulations guaranteeing fair play and accessible prices, based on an open market, and emphasizing transparency and efficiency. Fourth, rules and public policies need to be modernized to comply with the COP 21 Paris Agreement. Fifth, a mechanism must be devised to allow real-time access to information related to the energy balance: production, consumption, imports and exports. Finally, a serious effort is needed to progressively eradicate criminal insecurity and corruption. These improvements in the legal framework must be supported by regulating agencies that are actually independent from the government. “A crucial differentiator that will define the success of Mexico’s oil and gas industry is whether everybody plays by the same rules or not. Regulators are indispensable to this end and should not lose their autonomy,” Hernández adds.

Firms like PwC play an active role in guiding participants by providing them with a comprehensive set of tools destined to shape the sector’s future. Hernández says that for many years, PwC has worked with its clients to create a strategy for running business on a daily basis. “Our professional team in different areas, including tax and legal, advisory and assurance, works with the support of our Centers of Excellence to make this happen. With that in mind, it is possible to deliver real value to our clients facing complex situations; for example, on tax and legal advisory related to foreign investment in Mexico, tax compliance for expats, regulatory compliance, due diligence and strategy.” PwC also provides tech-based solutions that assist its clients with cybersecurity, data analytics and robotic process automation, among many other digital trends.

If PwC could change one policy or element of the current legal framework, Hernández points to private investment. “Even with the numerous official pronouncements promoting new energy policies, President López Obrador and his collaborators have not yet changed the energy law framework; however, they have announced changes to come before 2021. We cannot make any assumptions, but it is clear that all efforts will go to strengthening PEMEX as the lever for oil and gas activity in Mexico. This raises many doubts about the role of private investment but because intensive capital is required for the development of new oil fields, private investment would be a good option for the administration.” Hernández adds that considering the present situation, “it is important to promote private investment with an adequate regulation, state of law and certainty regarding the government’s commitment.”

If the market is transparent and adequately regulated, the next step for accomplishing President López Obrador’s ambitious production goal is to make sure that the oil and gas sector has the necessary infrastructure across its entire value chain. “Mexico has to improve its infrastructure in terms of storage and distribution to truly reach the point of energy self-sufficiency. The administration must ensure that it has the right capabilities to store, refine and transport resources throughout the country,” says Hernández, who is convinced that infrastructure investment will provide the much needed long-term certainty the industry requires. “Mexico has vast untapped potential, particularly in unconventionals,” she adds. “However, the country has many viable resources due to current oil prices. For now, it would be better to focus on current projects and leave others, such as fracking, on hold.