Jesús Reyes
CEO of EnergeA and Former CEO
View from the Top

Legacy of the 2008 Energy Reform

Tue, 01/22/2013 - 13:23

Q: What do you expect to be the impact of the 2008 Energy Reform on upcoming reform?

A: The new energy reform should not only acknowledge what happened in the 2008 Energy Reform. It clearly did not achieve all its objectives, because no constitutional amendment was negotiated, but it created a foundation on which we can build the upcoming energy reform. For example, there is no need to reopen a process to build positive public opinion, as this was already achieved in 2008 and most of the key arguments are still valid. We know what has to be done; the issue is how we will do it. This has to do more with how to negotiate the modifications that have to be made to laws, regulations, and the institutional framework under which the energy companies operate, than with how to draft them. The objective is not to make this an ideological contest, as it happened when I was in the middle of the 2008 Energy Reform as CEO of Pemex. We all agree that we have to act pragmatically and get o† the path that keeps leading to more missed opportunities and a weaker energy sector. The shared view is already there; we only have to build on it and work out how to execute the changes.

Q: What is your greatest frustration about the 2008 Energy Reform?

A: Energy reform in Mexico has been happening in stages, starting in 1992 with the opening of the natural gas market and the emergence of Independent Power Producers (IPPs), but there has never really been a comprehensive reform. Regarding the 2008 Energy Reform, my greatest frustration is that it did not go as far as it should have; we needed a reform that involved constitutional change, so when it was decided that the Constitution was not going to be amended, the reform became insu·cient. That is the main reason why, five years later, we are discussing another energy reform. Also, the opposition’s last minute change of mind to not allow us to open up the pipeline transportation sector to private participation was devastating; it was a last minute reversal of an agreement that was already there, and I really regret that this happened.

Q: What limitations does Pemex still face that were not fully addressed in 2008?

 A: Today, Pemex is not allowed to partner with other companies through operating agreements. There are some exceptions in which the industry has opened up to private sector participation since the 1980s, but the 27th Article of the Constitution remains paradoxical at best. On one hand, it states that all hydrocarbon resources belong to the country, and that Pemex has the advantage of being the sole company to exploit those resources. Yet it says, after the comma, that Pemex has the responsibility to do it all by itself. In other words, Pemex can hire other companies to drill or to provide certain services, but it cannot enter into a joint venture with private companies to explore or exploit the reserves. That is a terrible limitation; there is no other oil company in the world that has the same restriction. To change this was one of the failed objectives of the 2008 Energy Reform, and therefore, it is still the most critical modification that has to be pursued.

Q: Although progress was made in 2008, one of the key obstacles to passing meaningful energy reform remains society’s views on oil and Pemex. How should these sentiments be handled?

A: Well, there is a lot of sensitivity when dealing with these topics; however, one of the most important contributions of the 2008 Energy Reform was that it actually made the public realize that talking about oil should not be a taboo. Thanks to this, energy reform became part of the political agenda of every presidential candidate, with di†ering opinions obviously, which is a major change compared with past elections. Today, everyone understands that energy reform is a topic of major importance on the political agenda, and every party is willing to participate in the reform discussion.

Q: What are the political lessons President Peña Nieto should learn from President Calderón with regard to energy reform?

A: The main lesson is that, within any political party, there are always sympathizers for a fully-fledged energy reform. Therefore, Peña Nieto has to focus on gathering enough sympathizers to be able to pass the reform through Congress and Senate. So far he has been successful in passing reforms in various sectors because the plurality of Mexico, politically speaking and reflected in Congress, is a reality that can be taken as an advantage with the right negotiations.