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Despite Political Uncertainty, Mexico Energy Reforms Secure, Says Scholar

Mexico’s 2018 presidential election is a cloud over the country’s energy sector liberalization as populist frontrunner Andres Manuel Lopez Obrador has vowed to roll-back reforms. But even if elected, he’s not likely to be successful, the director of the Woodrow Wilson International Center for Scholars’ Mexico Institute said Wednesday.

Obrador “has committed himself to repealing the energy reform that was passed in 2013,” the Institute’s Duncan Wood told the U.S. House Foreign Affairs Subcommittee on the Western Hemisphere. If he were to win, “and that’s far from guaranteed...he’s going to face an incredibly tough time repealing the energy reform.”

Obrador would not have the two-thirds majority needed in both chambers of Mexico’s Congress to undo the reforms adopted in 2013, Wood said at a hearing on “Energy Opportunities in North America.” Additionally, a rollback of reforms would affect revenue realized by the government, putting any referendum to do so at odds with Mexico’s Constitution, he added.

Recent nationalism among Mexico’s politicians following the election of President Trump has calmed in recent months, Wood told the panel in response to a question about the rise of Obrador.

“He is putting himself forward as a candidate that is much better equipped to negotiate with the United States than the current government,” Wood said of Obrador. Regarding the North American Free Trade Agreement, Obrador “has said that if you really want to renegotiate NAFTA, if you really want to establish equality between Mexico and the United States at the diplomatic level, then he’s your man.

“Mexicans are not completely convinced by this.”

While the ongoing energy sector reforms are unpopular with many Mexicans, they will begin to deliver their promised benefits in a couple of years, Wood said. Oil production will increase, raising royalties paid to the government. “Mexicans will begin to reap the benefits of having a liberalized downstream and retail market in Mexico.”

For instance, multiple U.S. firms have opened vehicle fueling stations in Mexico that compete with the state-owned Petroleos Mexicanos (Pemex) stations.

“And Mexicans are flocking to them because they recognize -- although the price is probably the same as they’re going to pay at the Pemex station -- the quality of the product and the fact that they’re probably not going to get ripped off in terms of the amount of fuel that’s being put into their gas tank is a big advantage.”

Fallout from the election of President Trump and his harsh rhetoric toward Mexico has been weighing on Mexico’s upcoming elections, Wood said. “It’s not as dramatic as we feared it might be, but there is clearly an anti-Yankee sentiment among certain sectors of the Mexican electorate,” he said. “That will help Andres Manuel Lopez Obrador.”

A revision of NAFTA could be a good thing if it supports harmonizing energy infrastructure development across the U.S.-Mexico border, Railroad Commission of Texas Chairman Christi Craddick said in a recent editorial.

“A revised NAFTA could allow us to coordinate the location and funding of future projects and develop a uniform and comprehensive regulatory framework to deal with the transportation and distribution of energy across North America,” she wrote. “As an acknowledged leader in this area, Texas could influence the standards ultimately set.”

NAFTA trade fostered with Mexico have been good for Texas, and not just in the area of ever-increasing exports of natural gas south of the border.

“We run a trade surplus with our neighbor to the south, with Mexican exports accounting for 6% of the state's gross domestic product, compared to 1.3% nationwide,” Craddick said. “However, there are some areas where the original 1993 agreement is either silent or outdated.”

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