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Analysis

Perspective on Mexico's Investment Climate

Wed, 01/25/2012 - 14:33

Although Guillermo Pineda, Energy Leader of PricewaterhouseCoopers Mexico, believes that the Mexican oil and gas industry presents a good opportunity for investment for international companies, he believes that one of the major challenges facing these companies today is that the laws governing investment in the oil and gas industry do not provide the proper security for foreign investors. “Soon, it will be necessary to update the current laws in order to provide that security,” says Pineda. Having supported activities promoting investment in other North American countries, he has found in general that companies are initially excited by the prospect of investment in Mexico, but put o when they learn about the legal challenge of investing in the country. “At the last presentation of the integrated service contracts, we found around 500 companies interested in bidding in these contracts, but until the law is made clearer and more secure for foreign investors, participation will remain relatively low. However, at least we have seen that there is only one major obstacle in the way of a wave of foreign investment in the oil and gas industry in the years to come.”

Pineda believes that, until now, the lack of energy reform has been the result of unwillingness by successive governments to eect major changes. “Politicians are afraid to touch the Constitution, but on the other hand, investors don’t want to work with alternative rules without changing the Constitution. That is the main problem. No one wants to make the changes that are necessary. These are dicult political times, and no one wants to talk about changes to Pemex.”

In the current political climate, Pineda believes that the momentum is building for further energy reform. Although he believes that the oil industry expropriation of 1938 still weighs so strongly on the minds of politicians and the electorate that sweeping liberalization will never take place, he hopes that by looking at other countries around the world, the Mexican government will find a way to bring in important and necessary changes to increase participation. “We need politicians and the electorate to realize that foreign investment will not aect the sovereignty of Mexico. Rather, any type of investment in the oil sector, be it foreign or domestic, will help to grow the Mexican economy.”

Pineda believes that it will be necessary for Mexico’s political parties to work together in order to pass farreaching reform. This may not be as far out of reach as one might assume, given that the PRI presidential candidate Enrique Peña Nieto is championing energy reform as a key issue for the election, and the PAN has spent the last presidential term championing the advantages of reform for the economy. “I hope that in the next presidential term, both parties will think of the country, not just about their party. They have realized the growth of similar countries in Latin America that has come from energy reform, and are now beginning to change their long-held views that any reform would be damaging for Mexico.”

Before they achieve this, both parties will have to overcome their fear that left-wing parties opposed to energy reform will be able to sway the electorate into opposing it, Pineda says. However, he believes that public opinion is gradually swinging in favour of energy reform. “People are beginning to see that even China and Cuba, communist countries, have opened their oil industries to private investment. The message is beginning to sink in.”

When asked to weigh the pros and cons of investing in the Mexican oil and gas industry, Pineda returns to his original message, which is that energy reform is one of the final obstacles in the way of Mexico being an incredibly attractive place for foreign oil companies. “The relative stability of Mexico’s economy and political sphere cannot be underestimated in the world today. Additionally, studies confirm exactly how hydrocarbon-rich the country is. This is something that cannot be left unconsidered when looking for places around the world to invest. We have young people ready to work, and experienced engineers working in the industry today. All Mexico needs is the investment from companies that can bring technology and equipment in order for our industry to be one of the most exciting in the world.”