MONTERREY, Mexico – The biggest benefit from Mexico’s energy reforms will be a more competitive industrial base brought about by lower electricity prices, says a border congressman.
Javier Treviño Cantú, a diputado from Nuevo León, was a guest speaker at the 21st Annual U.S.-Mexico Border Energy Forum in Monterrey on Friday.
“I would not think about these reforms just in terms of oil and gas and electricity,” Treviño told the Guardian at the end of his speech. “This has much more to do with job creation in Mexico. It has to do with the strengthening of productivity and industrial competitiveness. It is not so much that Mexico will become an energy power but it will become a manufacturing power. That is the important thing to realize about these reforms – it is the jobs that will be created through a more competitive Mexico.”
Asked if improved competitiveness would be due to lower electricity prices, Treviño answered affirmatively. “The idea is that natural gas and electricity prices for the industry will come down. “ Asked by how much, Treviño said the government was not sure yet.
Treviño has been a member of Congress for only two years but already holds the chairmanships of the finance and energy committees. He was appointed to these posts because of his vast experience. “For the past two years, I have been working on the structural reforms we have enacted. For 14 years I was in the federal government. I was a deputy foreign minister. I was deputy finance minister. For nine years I was in the private sector. I was vice president of Cemex of Monterrey. I was lieutenant governor of Nuevo León,” Treviño said, highlighting his stellar career.
At the forum a number of visitors from the United States, including Texas General Land Office Commissioner Jerry Patterson and state Senator Bob Worsley, remarked how “brave” Mexican leaders were to enact energy reforms. After all, there is no guarantee of success and the public could yet turn against those who passed the legislation.
Asked if he considered himself brave, Treviño said: “I would agree we are talking about historic, transformational, reform. There is no doubt about it. We have been discussing energy reform for the last 20 years in Mexico and we wanted to put it into practice. Now, the key is for the executive branch to implement, rapidly and correctly, these reforms. I see optimism from the investor community. People are optimistic and encouraged by the spirit, in terms of having the implementation now, for having the first round of bidding processes, with blocks becoming available from deep waters to shallow waters, from mature fields to shale. There are opportunities for many different companies but the most important thing is the precision and the efficiency, in terms of the implementation of these reforms. But we are optimistic about this. This is going to be transformational for the Mexican economy.”
Asked why the deregulation of Mexico’s energy sector had to take place, Treviño said Pemex was becoming less and less efficient.
“In 2004, Mexico’s production of oil was 3.5 million barrels a day. By 2012, it had decreased to 2.5 million barrels a day. So, what happened? It was the end of the old model. The era of easy oil was over. So, we had to invest more resources and technology in the deep waters and the new formations for shale and for that we needed resources, new technologies and new players in the energy sector. It was not possible; it was not efficient to continue with the old model. We needed energy reform in order to increase our oil producing platform.”
Asked if the general public is as enthusiastic as the government and private investors about the reforms, Treviño said: “This is a continuing process. As long as people see the results and benefits in terms of job creation and investment and the opportunities for children to have new jobs, people will embrace that. As they long as they see benefits in their pockets, with lower electricity bills, that will be an important catalyst.”
In his speech at the forum, Treviño spoke about what he believes are the six key elements of Mexico’s energy reforms. After the speech, Treviño gave the Guardian, in his words, a condensed version of those elements. Here they are:
“We aim to create a new model for energy viability in Mexico for the 21st Century. This new model has six important components.
1) One was the transformation of the two major state companies, Pemex and the electricity commission (CFE), into real companies; state companies but much more efficient with boards with independent members and also with new processes so they are much more product so they can create public value.
2) The second element that is very important in the reform is that we opened up the energy sector for creating two important markets, the hydrocarbons market and the electricity market, with the participation of private companies, both national and international, according to a framework of legal certainty. This has to do with a set of contracts for profit sharing, production sharing and also licenses and services, in such a way that those who are interested in investing in Mexico can have a clear legal framework with which to invest.
3) The third has to do with the strengthening of Mexico’s regulatory capability for these markets. So, we have new bodies, which are the National Hydrocarbons Commission, and the Energy Regulatory Commission, which will be supervising and monitoring and really making sure with their regulatory ability that the markets are working.
4) The fourth element has to do with the creation of the Mexican Petroleum Fund. This fund is going to be managed by the Central Bank and all resources coming into Mexico’s finances from the energy reforms will come to this fund with clear rules. The monies will be invested not only in the budget and investment projects but also into promoting domestic savings.
5) The fifth element has to do with the protection of the environment. We created the national agency for industrial security and the protection of the environment in the hydrocarbon sector and with new regulations in such a way that we are going to be able to protect the environment while fostering the exploration and exploitation of hydrocarbon resources.
6) The sixth element, which is very important and which is permeating all other elements, has to do with transparency, with accountability and with corruption-preventing practices. All the regulations are aiming at this part in such a way that everyone in the country and internationally can know what is happening in the bidding process, in the allocation, process and signing of contracts and the implementation of contracts. So transparency, accountability, and anti-corruption practices are a key aspect to these reforms.”
Asked if he had a message for potential investors and supporters of the energy reforms in Texas, Treviño said: “This is the moment for joining forces, for the U.S. and Mexico and particularly Texas and Mexico. Just remember what happened 20 years ago when we started negotiating NAFTA. There was a lot of skepticism about NAFTA but then NAFTA became an engine for economic growth for Texas and Mexico. Now, energy reform in Mexico, along with your energy revolution in Texas is a very important ingredient for a new era of competitiveness for Texas and Mexico. So, we need to work together.”