The Energy Reform Proposal is here… – Weekly News Summary: August 16

Coffee by Flikr user samrevelThe Mexico Institute’s “Weekly News Summary,” released every Friday afternoon summarizes the week’s most prominent Mexico headlines published in the English-language press, as well as the most engaging opinion pieces by Mexican columnists.

What the English-language press had to say…

This week, President Enrique Peña Nieto presented his energy reform proposal on Monday. The Mexican President is looking for constitutional changes to open Mexico’s oil and electricity industries to private investment for the first time in 75 years. Catalogued by The Financial Times as  the country’s biggest overhaul since the passage of the North American Free Trade Agreement in 1994, the president’s proposal would allow Pemex to form joint ventures with private companies to explore for and produce oil and gas. But companies entering into such “risk contracts” would be paid in cash rather than with a share of the oil, something that may prove unattractive to the major international oil companies as reported by The Global Post. For The Chicago Tribune, the energy overhaul is essential in the ambitious reform package that Peña Nieto hopes will foster economic growth: the best-case scenario could add between 1 and 2 percentage points to potential growth, economists say. Under The Wall Street Journal perspective, the initiative could fall short of what some oil companies hoped to see and what most oil-producing nations offer.

The second important point of the energy reform has to do with electricity. Less visible in the announcement was the plan’s intent to overhaul the electricity sector and open up the state-owned utility to direct competition. As reported by The Wall Street Journal, the proposal would allow private firms to generate electricity for third-party use, creating a more dynamic market for electricity generation. President Peña Nieto also plans to open the natural-gas sector to private investment, a move that could help ease electricity prices because Mexico burns gas to generate much of its electricity. According to The Chicago Tribune, if Mexico’s existing state-run electricity monopoly is dismantled and market forces spark more competition and increased supply, experts say electricity costs could be halved. “Everyone will enjoy more and cheaper energy that they will feel in their pockets,” President Peña Nieto said on Monday, however he did not spell out how, reported The Financial Times.

After launching the proposal, the Mexican government has begun trying to sell it to two different but crucial audiences: a suspicious public that thinks the reform goes too far and skeptical investors who think it doesn’t go far enough, reported The Wall Street Journal. As pointed out by Los Angeles Times, the day after President Enrique Peña Nieto unveiled the proposal, the government flooded the airwaves, newspapers and other media with slick messages defending the reform. In other words, since the proposal was presented by President Peña Nieto on Monday, Government officials have made rounds of television and radio talk shows trying to transmit a message of unity within the Federal Government.

What Mexican columnists had to say…

This week, as happened with the news headlines, the main topic in the Op-eds was the Energy Reform launched by the Federal Government on Monday. Sergio Sarmiento wrote in Reforma that the idea of risk contracts was first proposed by President Lazaro Cardenas, he also argued that there is no sign showing that General Cardenas wanted an industry without private investment. Thus, he continues, president Enrique Peña Nieto is looking to use this historical reality to push for an energy reform that provides the Mexicans at least with the oil company that Lazaro Cardenas originally envisaged. Genaro Lozano, pointed out in his weekly piece that in the 29 pages of the energy reform proposal there is not a single mention about the Pemex workers union or on the need for transparency and accountability in such an organization, which, according to him, represents one of the greatest flaws of the proposal. In the same regard, Sergio Aguayo wrote that the Energy reform presented by President Enrique Peña Nieto is based on a weak assumption: the belief that private sector participation in the oil sector is the magic potion that will eradicate corruption in Pemex. On the constitutional changes required to reform Pemex Jesus Silva-Herzog Marquez, said changing the constitutional provisions on oil and energy is like “putting a miniskirt on the Virgin of Guadalupe,” Mexico’s most revered Catholic symbol.

Talking about the future of the proposal, Carlos Elizondo wrote in Excelsior that basing Mexican oil policy on what Lazaro Cardenas did in 1938 is equivalent to linking our public policy decisions to the past.. Finally, for Leo Zuckermann there is a disturbing similarity between the 2008 (when President Calderon presented his proposal) and 2013 scenarios regarding the Energy Reform.

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