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Energy Reform Rules Spurring New Investment in Mexico

08 May, 2014

Mexico is quickly moving to capitalize on its substantial and largely untapped energy resources as the government works to hammer out the final details surrounding new rules that will apply to outside investors in this sector. According to a recent report by Reuters,Mexico plans to eventually make it mandatory for all investing bodies and corporations to use a certain amount of labor and materials from local and national Mexican firms and businesses, but the rules will allow up to ten years for compliance.

“Energy minister Pedro Joaquin Coldwell said the quota, aimed at strengthening the domestic oil and gas industry, would need to reach an average of 25 percent by 2025,” writes Reuters. “The secondary laws set out rules for implementing the reform, and are being closely watched by oil majors such as BP and Royal Dutch Shell.” 

Opening up Petroleos Mexicanos, or PEMEX, to outside investment for the first time in about 75 years is one of the ways the nation’s current President, Enrique Peña Nieto, plans to jump start Mexico’s already strong economy, bringing about even greater economic stability and growth for the long term. In addition, details about the new laws, which were revealed in late April and early May by the Mexican government, contain requirements that are flexible and can be determined on a case-by-case basis when the contents are tendered – which will all be public information.

“They are emphasizing flexibility because they know that the mosaic of opportunities in the country require a different approach,” stated Jeremy Martin, who is a resident energy expert with the University of California San Diego. “It seems they definitely learned some lessons from Brazil, where you have much higher content percentages that are much more rigid.”

2014 is already expected to bring upwards of $27 billion to Mexico’s oil and gas industry as a result of the radical reforms, which have been deemed both a progressive and economically savvy move by a slew of international experts and analysts. To support this growth, Mexico also announced recently that the government will significantly decrease the tax burden on PEMEX, guaranteeing that the state oil giant will be able to offer at least a 20 percent stake in the variety of new business opportunities stemming from its untapped and highly lucrative deposits in Mexican waters and in land that borders the southern United States.

“These measures and the local content rules are aimed at ensuring the energy reform benefits Mexico’s economy even as it seeks to lure foreign investors that would compete with PEMEX,” writes Reuters. “Peña Nieto’s energy reform passed in December ends PEMEX’s 75-year-old oil and gas monopoly. It aims to generate billions of dollars worth of private investment for the industry in Mexico, the world’s 10 th biggest producer of crude oil.”

According to the report, the recent details released by the Mexican government surrounding the new laws and reform rules also require the government to reduce its involvement in the national electricity utility, CFE. In addition, the reforms are expected to create thousands of new jobs in Mexico and also to deliver a massive increase to the nation’s oil production, ultimately helping North America to reach energy independence. Congress is currently planning to hold extra sessions in order for lawmakers to finalize the new rules pertaining to Mexico’s energy laws by the end of June.

Topics: Investment Industry Pemex