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THE Game-Changing Mexico Opportunity

What if Mexico were to privatize its state-owned oil company Pemex around the same time that the US and Mexico ended the moratorium on oil and gas production along their shared Gulf of Mexico border? Opportunities galore …

Opening up the Mexican energy sector to private investment is one of President Enrique Peña Nieto’s top priorities, and we expect that reform to begin in 2013. This—coupled with the US House of Representatives’ recent ratification of the US-Mexico trans-boundary oil and gas agreement--means that production could begin soon along some very lucrative Gulf of Mexico acreage. 

Getting Rid of those Institutional Icons

Peña Nieto has already demonstrated his willingness to tackle institutional icons for the sake of better governance (i.e. the arrest of Elba Esther Gordillo, the notoriously corrupt head of the teachers’ union). And any political watcher would say that successful reform of the energy sector would be a historic victory and a tremendous legacy.

The potential benefit is greater competitiveness and faster GDP growth. Analysis by Mexican firm Marcos y Asociados shows that by 2020, projected GDP growth would be 2.3% higher in a scenario where Pemex accepts partnerships with outside investors than in status quo maintenance.

The downside will be political conflict; left-wing politicians in Mexico are adamantly opposed to any change in Article 27 of Mexico’s constitution. And they are dead set against the privatization of Pemex. 

Yet Peña Nieto already has already opened the door a crack; and he was elected on a platform which explicitly included the “modernization” of Pemex. Current expectations inside and outside Mexico mean failure to liberalize the energy sector presents its own political challenges.

Depending on his appetite for conflict, Peña Nieto may avoid a constitutional amendment, instead setting out legislation that would explicitly interpret the state ownership of oil and gas resources as permitting downstream license agreements and joint operations.

Given the preponderance of successful public-private “hybrid” energy companies across the globe (Statoil, Petrobras, Gazprom, Sinopec, Ecopetrol), Mexico has a number of potential models to follow. Key questions will revolve around

•    the types of licensing, concessions and partnerships permitted




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