Oil Alive and Well but Renewables a Worry Says Mexican Law FirmBy Pedro Alcalá | Tue, 08/11/2020 - 09:36
Q: How has González Calvillo’s portfolio of projects changed in the last few months given the COVID-19 crisis?
A: The change resulting from the crisis means that the industry has moved from growth to survival. The conversation prior to COVID-19 was of upcoming plans, expansion and greenfield projects. It was about certainty. Today, we have to say that this has changed. There are few companies that are now in the position to expand in Mexico, let alone around the world. The industry is competing for investment against other industries, including healthcare. The number of companies that have liquidity problems in Mexico is very surprising. They must undergo restructuring procedures and workouts to resolve their financial incapacities and avoid bankruptcy. The industry is likely to be chasing survival over the coming months.
Q: Where can companies restructure or cut expenses to face the crisis?
A: Companies across the board, including those outside of energy, must analyze their working processes. Companies that have debt must consider restructuring their debt prior to the expiration date so that they can access new loans or credits that may be required to see out the next few months. On one side, we have the COVID-19 crisis. On the other, it is clear that the administration prefers state-led generation of electrical energy in the country. However, in the upstream of oil and gas there is calm and legal certainty because there has been little government involvement in the sector. The upstream sector is alive and well. In midstream and downstream, there are a few concerns with CRE, but the biggest worry and main concerns are in the electricity sector.
Q: What is the timeline for the firm’s projects?
A: One of González Calvillo’s long-term projects is with a German company, Proman, on a large-scale construction of a petrochemical site in Topolobampo, Sinaloa, with an investment of US$5 billion. It is the largest infrastructure project in Mexico. The project has faced court orders that have been presented against it. However, the project is going well and we expect it to be fruitful, and its Mexican subsidiary Gas y Petroquímica de Occidente has secured project financing for US$860 million for the first phase of this project.
Q: What would González Calvillo advise companies that are planning to enter the Mexican market?
A: The CRE is attempting to facilitate the government’s ambition to grant the CFE a rather substantial, if not a monopolistic power, in the electricity generation market. But we believe that to do this, and to remove private companies from the picture, would be a huge destruction of the enormous value we have here. Mexico has an incredible opportunity to position itself as one of the true world centers of clean energy expansion but we are witnessing an absurd regression to polluting energy sources which, in turn, is pushing Mexico away from the environmental commitments it made in world accords. Thankfully, González Calvillo has many experts in these areas. We have the ability to defend our clients against what is taking place.
Q: What opportunities could the government’s strategy of favoring fossil fuels create for the industry?
A: We believe that LNG will see strong growth and that there will be many opportunities for companies in this segment. This is not going to happen right now, but opportunities are likely to present themselves in the 1Q20. The US needs to find another way to sell its natural gas to Asia. The only way is from the Mexican Pacific. Therefore, we should see business in this area grow. This would require reactivation of terminals in Baja California and other infrastructure on the coast, which itself would require investment. We have had many consultations related to this issue from interests in Mexico - there is demand in the market as well. For the rest of the year, however, we will be seeing a number of debt restructurings across the board and insolvency proceedings.
Q: What is González Calvillo’s outlook for the rest of the year?
A: A lot of M&A activity in the energy sector, as well as development of new projects and substantial restructurings and workouts, which, for the most part, we would envision continuing into 2021.
González Calvillo is a leading Mexican law firm with a diversified client portfolio across the entire energy sector of Mexico. Clients include both local and international companies, as well as governments