David Penchyna
President
Senate Energy Commission
/
Insight

Senate Priorities for a Comprehensive Energy Reform

Tue, 01/22/2013 - 13:15

"The 2008 Energy Reform was incomplete and ineffectual in achieving the political agreements needed for progress in the energy sector,” argues David Penchyna, President of the Senate Energy Commission. “In order to look for those political agreements, the technical and economic value of the Mexican energy sector was ignored and the reform failed to constitute a step forward in the search for energy independence.”

According to Penchyna, the energy reform passed five years ago actually put more obstacles in the way of Pemex as it attempted to provide the means for the country to pull through a tough economic environment, rather than removing them. He believes that the necessity for a new reform today stems from three principles that the last government failed to address during the last amendment process.

“The first point is to clear up the misconceptions regarding privatization. This reform will not touch Mexico’s sole proprietorship of the energy resources within its borders,” says Penchyna. “The nation will continue to be the owner of all energy resources found in its territory.” This represents a big communication challenge for the government, of which the President of the Senate Energy Commission is aware. “As politicians, we have failed this country by using the lack of knowledge about the Constitution to gain political advantage. This has brought high costs for Mexico in terms of energy,” he regrets. “We have to introduce a concept of sovereignty where the nation owns the energy resources to foster the required productivity and get rid of the taboos that drive Mexico to keep flaring gas instead of using it. Then we have to pass this notion to the people, in order to create a reform that won’t divide Mexican opinions.”

Penchyna’s second principle has to do with opening the industry to private investment. “It is impossible to imagine an e·cient and e†ective energy reform if the possibility of combining private investment with public investment is not legally certified,” he points out. “This is all based on the country’s ownership of its energy resources. As Lázaro Cárdenas stated, ‘the future of the energy industry depends on the development of combined formulae for private and public investment.’” This, together with comprehensive fiscal reform, will allow Pemex to better distribute its financial resources and develop the energy needed to satisfy growing national demand. 

The third consideration for a successful reform is that it should consider the entire energy sector, not just the oil and gas industry. “Mexico has always looked to produce a reform for Pemex, and we have failed,” Penchyna recalls. “The Senate is aiming to reform the whole sector, so that changes made to the oil industry will complement and help the electricity sector and the gas sector, and vice versa.” By planning to reform the whole sector simultaneously, the country’s economy can slowly move away from its dependence on oil.

Even when ideological disagreements and public misconceptions of privatization create challenges for the reform, Penchyna is optimistic for two reasons. “The braveness that President Peña Nieto showed when campaigning through his taboo topic, energy, has helped in the consecution of the political agreements among parties. This was a must to set a good tone for the energy and fiscal reforms to be passed in the Congress,” he says. “At the PRI we are aware of the political challenge that showing we can govern represents after losing power for 12 years. We accept the responsibility that reforming the energy sector represents for our children and our country, and we’re willing to do anything to achieve it – especially with the paradigm shift that shale gas has brought.”

The other factor that encourages Penchyna to be positive about the amendment process is the educational agenda that the Senate Energy Commission is following to learn about international best practices and how they can be applied in Mexico. “We are learning about Brazil, Norway, Colombia, the UK’s regulatory institutions, Azerbaijan’s gas accomplishments, among many other models to build our own adapted prototype of energy reform,” Senator emphasizes. “The Senate is having educated and ordered discussions about what is best for the country, leaving our political agendas behind. At our first meeting, we began discussing the most productive energy sector legislation of the last 25 years. We are on the right path; we just need to keep following it to be able to pass the reform.”

PRIORITIES FOR COMPREHENSIVE ENERGY REFORM

1. Good communication: energy resources will continue to be the nation’s property

2. Fiscal reform to move the country’s finances away from its reliance on oil

3. Opening the industry to private investment

4. Comprehensive energy reform for the whole sector – not just Pemex