The transparency that has been carried out throughout the whole energy reform process has given a lot of confidence to investors.

César FRAGOZO Head of Sector Development Unit PROMéXICO

Promote a strong energy industry

October 30, 2017

César Fragozo, head of ProMéxico’s Sector Development Unit, talks to TOGY about how the energy reform has opened investment opportunities in new areas, what local companies must do to prepare for work with foreign firms and the agency’s role in attracting investment to the country’s oil and gas industry.

ProMéxico is a local agency whose aim is to promote investment in the Mexican economy. The entity has 49 offices abroad and 30 offices in Mexico, through which it communicates with and supports companies interested in participating in the domestic market and local firms seeking to grow abroad. ProMéxico further co-ordinates policy measures and action to attract FDI to the country.

• On investment impact: “Everybody talks about the quantity of investment that has been captured through the E&P bid rounds, but we also have to mention the impact of that USD 56 billion on the whole supply chain. The multiplying factor of that investment over the next 10-15 years will be enormous.”

• On partnering: “Foreign companies seek to partner with entities that have a consolidated corporate governance framework. This is a challenge that Mexican companies in this sector have to learn to overcome to make decisions as a business.”

Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find the full interview with César Fragozo below.

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How has the energy reform impacted investment in Mexico?
As Mexicans, we still need to comprehend the huge impact that the energy reform will have. This is reflected in the volume of investment we have been receiving through the E&P bid rounds. However, this is only the tip of the iceberg.
Nobody had ever imagined the success that we were going to have. Some expected it because of the overall structure and the plans laid out by the reform. The goal of all of this was to make Mexico more competitive at a global level, both in terms of manufacturing, but also as a country.
A range of investment opportunities will be triggered across the whole supply chain. Everybody talks about the quantity of investment that has been captured through the E&P bid rounds, but we also have to mention the impact of that USD 56 billion on the whole supply chain. The multiplying factor of that investment over the next 10-15 years will be enormous.

What key opportunities do foreign companies see in Mexico’s energy market?
So many opportunities have derived from upstream liberalisation through the E&P bid rounds and opportunities are now being presented throughout the whole value chain. We have to be equally successful with the development of the entire value chain.
We have detected specific opportunities with regards to manufacturing oil equipment in Mexico for use in the Gulf of Mexico and South America. This is supported by Mexico’s geographic location.
In the business of equipment manufacturing, companies such as Schlumberger, Halliburton and BHGE [Baker Hughes, a GE company] are present in Mexico. They take advantage of our geographic location and the growth of projects in the Gulf of Mexico, and install service centres, particularly in MRO [maintenance, repair and operations] linked to the exploration and production process.

What are the attractive openings in the infrastructure sector?
It is also worth highlighting the opportunities in terms of infrastructure, which is necessary for the adequate and long-term development of the energy industry. We refer to the needs of port facilities, railways, roads, pipelines and storage terminals, among others. It is necessary to build or update the infrastructure to provide maintenance, repair, operation, transportation, logistics and communication services to energy sector projects.
We need to consider all the services and logistical needs that will be demanded by the companies coming in to operate blocks that have been granted in the bidding rounds. There are also opportunities in developing storage terminal infrastructure, which is essential.
In the federal government, some public trusts in the secretariats of energy and economy are aimed at developing capabilities in local enterprises, so they can get into the global supply chains of international companies.

What challenges do local companies face in preparing to partner with international players?
Prior to reform, the majority of companies providing services to the oil industry were family businesses that lacked a certain level of corporate transparency. Foreign companies seek to partner with entities that have a consolidated corporate governance framework. This is a challenge that Mexican companies in this sector have to learn to overcome to make decisions as a business.
Another topic is international certifications. One of the government’s main goals is to find the best way to support Mexican businesses. Local businesses have participated in the sector for years, providing their services solely to Pemex. They did not need all these certifications, which are also very costly. They must now get those certificates to provide services to key international players. Therefore, we have to work with them closely and find a way to help them obtain certifications because they are not well known in Mexico and there is a strict process to acquire them.


What is the importance of promoting transparency to attract further investment in Mexico?
The transparency that has been carried out throughout the whole energy reform process has given a lot of confidence to investors. The most important comments we have received about the reform internationally have been related to its transparency.
At the beginning of the reform process, much of the criticism from the press regarded the slow pace of the process and the multitude of organisms that were created. This gave the idea that the reform was going to be very complicated.
We would like to congratulate all the organisms that were created to carry out the reform. In the end, they carried out their tasks, made the process much more transparent and achieved equilibrium and transparency during this time. The reform has functioned properly and has given certainty to foreign investors, so that they can continue investing in Mexico.

What areas at the state level should be improved to provide more certainty?
There are some gaps at the state and operational levels, but they will be addressed once the states see the benefits of the reform and the capital that is coming into the country. The states are already seeing this and they need these investments. In the past, a few states received these benefits from the sector. Now, the reform and liberalisation has caused tangible positive changes and the policy and political challenges at the state level will begin to be solved.

How did ProMéxico become involved in Mexico’s energy industry?
ProMéxico is a trust that is independent from the Secretariat of Economy. It has three functions: to bring in foreign investment in all sectors, promote Mexican exports and, more recently, the globalisation of Mexican companies.
Energy is a sector that was previously closed to investment, so it is a sector that ProMéxico, from its beginnings, managed very little. When the sector was opened by all of the changes from the reforms that this government launched, ProMéxico created a strategy to attract investment in the energy sector. This included the creation of an executive branch focused uniquely on energy, from hydrocarbons to renewables.

What is ProMéxico’s energy investment strategy?
The strategy that we have designed is principally aimed at disseminating all the information following the rolling out of energy reform through the 49 ProMéxico offices abroad. These offices are focused on attracting investment in different sectors and concentrating on certain countries that are more focused on the hydrocarbons sector. Through these offices, we have distributed additional information resources and have been working with businesses from those countries to demonstrate the opportunities that exist in Mexico in light of the energy reform, with the goal that they come to this country.
Once we capture the interest of the investor, we accompany them through our central and regional offices in the states where the company will start its operations. This also includes helping the business meet the conditions to operate, and oversight once the business is already operating.

What is ProMéxico’s role in helping investors interact with government agencies?
That is one of our principal tasks. Once foreign investors are attracted, we cannot abandon them when they arrive in Mexico. We provide a complete set of attention services known as “aftercare” once the business is already active. This aftercare service consists of providing strategic information, networking with federal and local entities, identifying potential suppliers, permitting management and others.
Investors require certain necessary arrangements with public entities such as the CNH [National Hydrocarbons Commission] and Cenace [National Centre for Energy Control]. ProMéxico acts as the account manager for these types of proceedings. We go the extra mile because these are not just questions of proceedings when the business is starting, but also questions of advisory, which is very important when investors have problems. This is where ProMéxico can have a pivotal role in bringing forth investment.
Many times, investors don’t know who to reach out to, so ProMéxico helps with issues ranging from certifications, regulations, documents, labour and arranging suppliers in the energy supply chain. This is extremely valuable for the country, because investors feel covered and we have the opportunity to get additional business from investors.

How does ProMéxico work with business associations to support investment?
Chambers of commerce and business associations such as the Mexican Energy Council, Mexican Association of Hydrocarbons Companies, Mexican Association of Oil Services Companies and Mexican Association of Natural Gas, are our strategic partners. We collaborate with them in national and international events.
We have established a constructive dialogue regarding the more efficient use of resources and how to reach better results, from the power auctions to the upstream rounds. This has added to government efforts to listen to feedback from companies and the different chambers about the E&P bidding processes.
Other associations play an important role within the industry with regards to engineering, logistics and supplies. They are key in building a strategy with the government to develop a business ecosystem. However, we need to maintain our focus throughout the whole industry. These associations have to have a vision and ProMéxico helps them become stronger. The stronger these institutions are, the more business opportunities they will have. We see that as a natural strategy, not only for the sector, but also for all of Mexico.

What position does the energy industry have in the NAFTA renegotiations?
The subject of energy is very important for both countries. First, Mexico and the United States share natural resources across all the frontiers, from shale gas basins to renewable energy potential. Mexico is a big importer of energy from the United States, but the importance of energy for both countries goes beyond commercial issues. Energy is a national security matter, in which both countries can help each other in case of electrical failures or natural disasters.
Now, with the NAFTA renegotiations, the topic of energy has huge importance. When the treaty was originally signed, energy was not considered because it was a closed sector in Mexico. Nowadays, it is a good time for the industry to be considered and there is interest from all relevant parties.
NAFTA promotes a North American region that is competitive and the topic of energy makes it much more competitive. The big advantage we used to have as a country was low labour costs, but with greater levels of automatisation, lower energy costs are becoming increasingly important. In this new era, the cost of energy will be the key driver to define the destiny of companies’ investments.

For more information on ProMexico’s work with local and foreign companies in the Mexican oil and gas industry, see our business intelligence platform, TOGYiN.
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