Slower Processes the Cost of Transparency

Q: What did CNH learn from Round One and how has that translated into changes for future rounds?

A: We tend to over-regulate. This is normal because humans are afraid of losing control. For that reason, operators have been, without a doubt, responsible for the bulk of our learning process because they are the ones contacting us to say the regulations are too complicated, too expensive or too hard to meet. When they express a concern, we gather the information and discuss the implications of the regulations with the Ministry of Energy and the Ministry of Finance. These institutions have been receptive to recommendations. CNH meets with them at least once a week to ensure the constant and quick flow of information. Having an association such as AMEXHI has also facilitated contact with private companies because it is much easier to have conversations with an organization than it is to talk with every single company present in the market.

One major change for which CNH was responsible is the nomination process. CNH, the Ministry of Energy and the Ministry of Finance had believed that it was enough to look at PEMEX’s information and from there decide which blocks were the best to put up for bid. After long talks with the companies participating in the bidding rounds we concluded that these companies could have different points of view about these and other areas, as well as critical information that could alter their decisions. All of this led to the decision to include the nomination process. It is important to state that nomination does not mean assignment, it means that the area might be included in a bidding round.

Q: How does CNH deal with the lack of trust that Mexicans may have in their regulatory institutions?

A: We are aware that Mexicans are not particularly confident in their institutions and for that we have developed a completely transparent process that, truth be told, has also made the process slower and less flexible. For example, for the assignment of blocks we have concluded that the royalty component is the most significant for decisionmaking, washing aside any possibility for corruption or misunderstanding. A proposed working program is also used to decide the assignment of blocks, but we have made this aspect more flexible because it changes as the block develops. The nomination process will bring even more complications to the bigger regulatory picture because of the confidential information from private companies that must be handled while ensuring an equal and fair process. Like everything else, there will always be problems at the start but the learning curve will be followed. Future actions will be geared toward relaxing bureaucracy while ensuring transparency but first the process itself needs to work.

Q: What are CNH expectations for Round Two?

A: We expect it to be much bigger compared to Round One. The whole point of Round One was not just to get more companies investing in Mexico but to show the rest of the world that there were opportunities here and that these opportunities were real and fair. We have accomplished that despite the instability created by the administrations of US President Donald Trump and Venezuelan President Nicolas Maduro as well as the volatility in the Middle East. We are confident that more companies will be arriving next year.

Q: What is CNH’s main focus for the coming 12 months?

A: We see a lack of gas production and want to tackle that. During the last decades, much of the attention was on oil production. Now we want to take advantage of the gasoriented focus Mexico now has and boost it. In doing so, we expect to not only decrease imports but likewise increase energy security and national competition. It is not CNH’s main role to change policies but we can advise the Ministry of Energy on specific topics. One way we can spur a quick increase in gas production is by implementing proper tax incentives. By implementing the right incentives, we hope the country can produce more gas and create a larger and more connected infrastructure.