Instruments of reform: Mexico’s secretary of energy on opening an industry

March 4, 2015

Mexico’s Secretary of Energy Pedro Joaquín Coldwell has been charged with the task of leading the secretariat’s efforts in setting the groundwork for energy independence in the years ahead and talks to TOGY about the emerging process. The Secretariat of Energy has been instrumental in designing the rules and regulations of the country’s historic Energy Reform, passed on August 12, 2014.

Mexico is expecting around $50 billion in oil and gas investment between 2015 and 2018. What hurdles lay ahead in obtaining such interest?

The opening of the industry to private investment and its subsequent growth pose important challenges that Mexico must overcome. The availability of skilled labour and the enforcement of national content, as well as the strengthening of regulatory agencies, are complex themes and processes that may present difficulties. However, the Energy Reform provides an answer for each of these.

In matters of transparency, clear rules for the design, processing and licensing of contracts and assignments have been established, which also applies to the management of oil income. The agreements, resolutions, drafts and licensing decisions will all be made public. Likewise, the Federal Electricity Commission and state oil company Pemex will publish information about their dealings and those of their subsidiaries and affiliated companies.

The goal of strengthening Mexico’s institutional framework is fully underway. New regulatory powers have been assigned to the secretariats of energy and internal revenue and public credit that will allow for greater oversight of regulations, which will supply the federal government with increased tax revenue.

The National Agency of Industrial Security and Environmental Protection of the Hydrocarbons Sector will be in charge of industrial safety and environmental matters. It will regulate and enforce bans on hydrocarbons extraction activities in established protected areas, with the goal of preserving the natural environment and cultural-historical heritage.

Pemex has undergone major changes with regards to restructuring and preparation for the bidding rounds of 2015. Has the national oil company received sufficient assets in the Round Zero and Round One tenders?

Out of the resources Pemex asked for in Round Zero, they obtained 100 percent of 2P reserves and 67 percent of prospective resources, thus ensuring the daily production until 2035 at a production rate of 2.5 million barrels of oil per day.

Most of the resources assigned to Pemex are located in conventional basins, which include inland areas and shallow water, though they also obtained resources in deepwater and unconventional formations as well. With this, the maintenance of existing production levels and an eventual increase via future partnerships with private companies are expected.

How does Mexico intend to meet the energy industry’s increased demand for skilled labour in years to come?

The Strategic Programme of Human Resources Training in Energy Matters, published on September 30, 2014, establishes training initiatives that will develop human capital and value-generating projects for the Mexican energy industry.

 

This will, for a large part, be accomplished through the awarding of 60,000 scholarships for technical, high school and postgraduate level students, while also updating the country’s existing education programmes and research agenda.

The programme’s intent is also to identify mechanisms that will be implemented to develop human resources in Mexico’s energy industry during the period of 2015-2018, which will be realised through fulfilling training needs, providing grants at every level of the labour skills matrix and financing research and innovation activities.

In terms of national content, the reform will establish obligatory requirements for assignments and contracts. The share of national content required will increase from 25 percent in 2015 to 35 percent by 2025. The Secretariat of Economy will define the methodology of measurements and compliance regarding the minimum share.

In addition, the secretariat will manage the new Public Trust to Promote the Development of National Providers and Contractors, which aims to provide special attention to small and medium-sized enterprises for the training, research, and certification processes to close the gaps in technical and quality skill levels. The Trust will have an initial value of around MXN200 million ($14.8 million) and a budget for 2015 of MXN300 million ($22.2 million).

Mexico’s industrial electricity rates are among the highest in <a href='https://theenergyyear.com/companies-institutions/opec/’>OPEC. What initiatives are being taken to reduce the cost of electricity in the country?

The cost of electricity in Mexico depends 80 percent on the feedstock used by the country’s power generators. The Energy Reform aims to expand the use of natural gas because it is cheaper and emits less carbon dioxide than oil-based fuels.

The eventual development of natural gasfields in Mexico will also allow us to reduce imports, provide the necessary demands of the power generation sector.  This, in conjunction with the amplification of the national gas pipeline network and the exploitation of Mexico’s shale reserves, represents favourable conditions for the national electricity producers and the further attraction of foreign investment.

What other aspects of the Energy Reform present openings for foreign and local investment?

Besides the opening of the industry to private investment for the exploration and extraction of hydrocarbons, the Energy Reform establishes new operating models in the natural gas and electricity markets with the goal of promoting private investment and increasing the infrastructure of gas pipelines, generation capacity and transmission lines.

Additionally, a progressive opening of the petrol and diesel industry is expected to allow for prices to be dictated by market supply and demand by 2018.

The reform also establishes the use and utilisation of clean energy in power generation and lays the groundwork for Mexico’s transition into a low-carbon economy. Concrete policies such as the Clean Energy Certifications programme and the new regulations for the evaluation, exploration and extraction activities in geothermal are some key examples of these initiatives.

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