Senate: Shaping the Industry's Legal FrameworkWed, 01/25/2012 - 12:38
In 2008, during the Energy Reform debates, protesters filled the streets outside Congress to the point that the Senate was forced to hold its voting session in another building. A watered down reform passed, but the negotiations had taken over a year. The 2006 presidential elections had resulted in a narrow victory for the PAN over the PRD, which meant that the political environment was fairly hostile to political cooperation. Rubén Camarillo Ortega, PAN Senator and Secretary of the Senate’s Energy Commission, remembers that agreements were hard to reach within the Senate, and that the 2008 Energy Reform was passed in a very tough environment.
Camarillo Ortega explains that the Senate debate on energy reform intended to be as technical as possible, rather than focusing on issues of political ideology related to Pemex’s future. Television transmitted discussions and sessions to the public, in which experts and academics were invited to express their opinions. The PAN Senator says that everything was divided into specific issues, for which proposals were subsequently received. “Then we sat in the Senate’s Energy Commission and started the discussion. It took us about seven months and there were probably more than 100 meetings inside of the commission,” he remembers. He believes that Pemex needs to function more as a business and less as a government entity. When asked to describe the last reform, Camarillo Ortega answers that he sees it as “liberating the giant”.
The resulting change was big, Camarillo Ortega says, but not big enough; a second phase of reform is still needed. This would mean analysis of the last reform’s results and evaluation of what issues need to be clarified. A new bill would then be submitted to make sure everything that was approved a few years ago really works in practice. Camarillo Ortega adds that another goal for this second reform phase would be to focus on the steps that were previously impossible due to the tense political environment in 2008. “That means oil refining and petrochemical activities. All this needs to be opened to the private sector” the PAN senator says. “Pemex needs to have competition selling gasoline in Mexico. We cannot maintain the monopoly in gasoline. We are competing in gas, so why are we not doing it in gasoline or basic petrochemicals? We think the second phase needs to open the petroleum industry’s industrial chain, except in the primary activity of oil production.” PAN senators introduced an initiative explaining this second reform phase last year, and they do not believe constitutional reform is needed to allow private participation in the industrial chain, as long as primary production activities remain under state control, according to Camarillo Ortega. A reform could not happen before the elections; it would have to be an issue for the next parliamentary session that starts in September 2012. In general, the Senate’s Energy Commission has to revise initiatives related to the energy sector and present its assessment of the proposals before the final document is discussed in the plenum. Camarillo Ortega believes that the PAN and the PRI could look together at this second reform, based on conversations he had with PRI Senator Francisco Labastida Ochoa, the current President of the Energy Commission.
However, Camarillo Ortega thinks that Pemex is not using the flexibility the existing law already provides, especially for its incentive-based contracts. “They are taking just a small piece of the pie,” he says. “That cannot be.” The law currently forbids Pemex from rewarding its contractors based on production results, but does allow for incentives based on production eciency and technology contribution. Pemex is not yet rewarding its contractors based on these terms, and Camarillo Ortega believes that the contracts need to be updated as soon as possible. Furthermore, the Senator expects a selective contracting process of the companies that will participate with Pemex in deepwater projects, so as to find the right ones for the job. “We cannot make a selection mistake in this big challenge,” he says, pointing out the higher cost of deepwater activities compared to shallow water projects like Cantarell.
Positive changes have been made and implemented. The CNH, the recently created oil sector regulator, is one of the main achievements of the reform, according to Camarillo Ortega, because an authority now exists, independent from Pemex, that can assess the NOC’s main activities. “In the past, Pemex executives did whatever they thought they should do. Now, they need to go to the independent agency to approve their projects and that is a very healthy process,” says Camarillo Ortega. The CNH regularly makes assessments of the fields in Chicontepec for example, gauging the development plans, the technology used, as well as the production results.
Also, the professionalization of Pemex’s board helped to make its decisions more transparent. “I believe this is one of the biggest achievements of the reform, because now citizens can have a view inside the place where Pemex takes decisions. In the past, we just accepted whatever Pemex said as the truth.”