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Mexico Energy Reforms Likely Safe in Future Administrations, Say Government Officials

Mexican officials this week brushed aside concerns that the country’s upcoming presidential elections in 2018 could pose a risk for the nascent energy reforms taking hold in the oil and gas industry.

At the inaugural U.S.-Mexico Natural Gas Forum in San Antonio, sponsored by LDC Gas Forums, government officials said there’s likely no turning back after the country opened the energy industry to private investment, a view that other experts also believe.

Representatives of the Mexican Energy Secretariat(Sener), the National Hydrocarbons Commission (CNH) and energy regulator, Comision Reguladora de Energia(CRE), all expressed skepticism that a new administration would be able to severely hinder the reforms, now almost three years into their implementation.

“The next administration will obtain the fruits of the efforts by this one,” said Sener’s Rosanetty Barrios, the head of the industrial transformation unit. “I don't see a reason to reverse the process, especially when all the political costs were absorbed” by the current government.

Mexican general elections are scheduled to take place on July 1.

While the voting date is still far off and no clear frontrunner has emerged, former Mexico City mayor Andres Manuel Lopez Obrador, a left-leaning populist, has led in some recent polls. The candidate, popularly known as AMLO, has criticized the energy reform and even said he wants to “cancel” it, ruffling the feathers of some investors who are eyeing or already active in Mexico’s energy sector.

At the three-day gas forum,the officials pointed to various political, regulatory and economic obstacles and checks that AMLO, or any other administration wishing to roll back the reforms, would face if elected.

For one, the ruling Partido Revolucionario Institucional (PRI), led by President Enrique Pena Nieto, had to amend the Mexican constitution to implement the energy reforms, a process which required two-thirds approval from both houses of congress and support from a majority of state legislatures.

“We haven't had a majority government since 1997,” CNH Commissioner Hector Moreira said. “For 20 years we have had coalitions, so the idea that one party is going to win and eliminate all of the reform is very unlikely.”

Mexico has several small political parties and three main ones: the PRI, the Partido Accion Nacional (PAN) and the Partido de la Revolucion Democratica (PRD). AMLO founded party MORENA for the 2012 elections, after a falling out with the PRD.

“It’s very difficult to get all of the political parties and get the two-thirds approval,” Moreira said.

The CRE and CNH, both of which were strengthened under the reforms, are also organized in ways that shelter them from elections cycles. Only one of the seven commissioners for each body can be changed per year, and all new candidates must receive approval from two-thirds of the senate, Moreira said.

Both regulators are key players in the implementation of the reforms, writing regulations, approving permits and, in the case of CNH, tendering exploration and production contracts to private oil and gas companies.

“Already $80 billion of investments have been committed over the last three years since the implementation of the reforms, so going back would have a huge impact on the Mexican economy,” said CRE’s Ruben Rodriguez, director of economic analysis at the natural gas unit.

AMLO’s party appears to have walked back the candidate’s comments. In early August, a MORENA representative recognized the difficulties of a total reversal and said AMLO would instead seek to renegotiate some specific aspects of the reforms.

“No one has said that private investors will be kicked out of the oil and gas sector, or that the energy sector will be nationalized,” MORENA advisor José Luis Beato said in a media interview.

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