Less than two months after the PRI gained a marginal victory in Mexico’s midterm elections, the administration of Mexican President Enrique Peña Nieto has been hit by two stinging setbacks.
First was the humiliating escape of Joaquín “El Chapo” Guzman, the head of the infamous Sinaloa Cartel, and soon after was the energy reform’s less than stellar first bidding round. All is not lost on either front, but moving forward will require a dramatic change of tone and direction on security measures, and serious recalibration on the energy side.
On July 11, El Chapo slipped through a tunnel in his maximum-security cell and emerged as a free man some 1.5 kilometers away. The shocking escape rocked the country (and the world) and underscored the extent to which corruption permeates even the top and supposedly most secure parts of Mexico’s security establishment. It also brings to light the issue of why El Chapo was sitting in that prison in the first place. Especially as U.S. officials had formally filed an extradition request less than three weeks before his escape.
Carin Zissis’ piece for Americas Society / Council of the Americas’ (where I serve as a board member) highlights how extradition may be the Mexican government’s most effective tool for fighting the cartels. Yet, since El Chapo’s capture eighteen months ago, the bilateral cooperation on this front has waned. Of course, the United States and Mexico’s security relationship extends well beyond this singular issue. That said, the escape threatens to put our bi-lateral collaboration on less certain ground, as Alfredo Corchado explains in his piece in the Dallas Morning News.
As the nation reeled from El Chapo’s disappearing act, the government turned in an underwhelming performance in the country’s first energy auction. July 14 marked the bidding day for fourteen shallow water blocks up for exploration.
While interest among major energy companies had been high in the lead-up, only six of the blocks received any bids at all. Of these, only two fields received bids that surpassed the government’s minimum fiscal requirements. This meant that only two fields were assigned (a 14 percent success rate), falling short of the government’s own 30 to 50 percent benchmark for measuring success.
The reasons behind this lackluster performance are likely a combination of low global oil prices, concern over elements of the government’s production-sharing contracts, the fields’ small size, and geological considerations. On a positive note, the bidding round itself was highly transparent and efficient and the actual process of running a tender went off without a hitch. The government will certainly want to repeat this smooth process for future rounds, but it will need to aggressively review all commercial terms to make sure they are as attractive as possible for future investors.
Since El Chapo’s quick apprehension and extradition is unlikely, what the government should do is immediately shift toward a serious, long-term and sustained commitment to building the country’s rule of law. But even bold steps and a strong policy agenda may very well be too little too late for regaining Mexicans’ frayed trust in their government, but are absolutely critical to maintaining investor confidence going forward. At this point this is not only the best path, but the only one worth pursuing.
I hope you’ll stay connected and in touch with me on LinkedIn, Facebook and Twitter for more news from Mexico. And, if I can assist you or your team here at White & Case in Mexico City or through Vianovo Ventures, simply call.