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With Energy Reforms, 'Mexico Is Back,' Says Former President

The management and governance of Mexico national oil company Petroleos Mexicanos (Pemex) is going to "change dramatically" as a new era of transparency and accountability is ushered in by reforms adopted late last year to open the company's energy sector to outside investment, former Mexican president Vincente Fox said during a conference call Tuesday.

Mexico's Congress last December gave final approval to reforms opening the country's energy industry to foreign investment after 75 years of monopoly control by Pemex (see Daily GPI, Dec. 12, 2013). Outside money, talent and expertise are seen as vital to exploiting the country's vast oil and natural gas reserves and stemming oil production declines.

"We know that Pemex will operate as another competitor..." Fox said, adding that the Pemex board will no longer have to include representatives from organized labor. He suggested that these slots on the board could be filled by members from the private sector, scientific or academic circles.

"So management, governance of Pemex is going to change dramatically because it's urgent that the change in management culture within Pemex has to change completely to make it totally transparent, to make it totally accountable and to make Pemex highly efficient..." Fox said. "All of these changes are going to be provoked right at the top of the management structure of Pemex."

Fox, who was a member of Mexico's National Action Party and was president from late 2000 to late 2006, made his remarks during a conference call sponsored by conservative Texas-based think tank Institute for Policy Innovation. He said the energy sector reforms represent a "game-changer" for his country.

Mexico has vast resources of oil and gas in the deepwater Gulf of Mexico that Pemex has been unable to exploit due to a lack of resources. The same is true for the substantial slice of the Eagle Ford Shale that lies in Mexico. A little to the north, the Eagle Ford has been a boon to the South Texas economy and to U.S. oil supplies, which Fox noted.

Mexico has "a huge opportunity" to attract investment and technology to its energy sector, he said. The early birds to Mexico will get the best worms, in the form of the best contracts and concessions to do business in the country, Fox said. Openness might not be 100% at first, but Mexico boasts a stable currency and trade agreements with 43 of the world's leading economies, including those in Europe, South America, as well as Japan, the United States and Canada, Fox said.

This week law firm White & Case LLP released a report on Mexico's public-private partnership (PPP) law, which was enacted in December, and what it means for infrastructure investment in the country.

"Investors in Mexican infrastructure projects have faced some uncomfortable unknowns," said Someera Khokhar, Americas regional section head for the energy, infrastructure, project finance and asset finance group of White & Case. "Mexico is gearing up for an infrastructure surge, and the new federal laws aim to attract foreign investment and give investors and contractors a more certain -- and more familiar -- environment."

According to the firm, legal changes provide greater security for investors and include:

  • A thorough, transparent bidding process means requests for proposals will be widely published and contracting authorities have to prepare feasibility studies for prospective PPPs. Bidders can present unsolicited proposals; they can recover reasonable bid costs and will have a financial advantage at a public bid stage.
  • ??Minimum mandatory terms protect investors' and developers' interests and allow flexibility (e.g., clearly defined rights and obligations, risk sharing, liquidation damages on default), but the parties define the detail.
  • Clearer rights for investors include rules on taking security interests in tangible and intangible assets, temporary step-in rights and compensation rights if a contracting authority terminates a contract.
  • The right to domestic or international arbitration of disputes expressly exists and is consistent with the United Nations Commission on International Trade Law Model Law on Commercial Arbitration. Arbitration awards can be enforced.

Fox said Tuesday he was "very happy" to see reform coming to Mexico's energy sector, even though it didn't happen under his administration, which ran from late 2000 to late 2006. "I tried hard, but we didn't attain it [energy industry reform]."

He praised President Enrique Pena, a member of the Institutional Revolutionary Party (PRI), who began his six-year term in 2012. "He was very smart in looking for consensus," Fox said. "He was very smart in looking for the constitutional change not to be rejected by any political party. And he was very careful in now knowing that it's in hands of the government, that it's in the hands of the PRI party...to have the capacity to go further with the secondary laws and these regulations.

"So get ready. The opportunity is here. I know there are opportunities in other parts of the world, but Mexico today is back with a very strong momentum...Today, investment in China is coming back to Mexico because of its strength in this manufacturing capacity that no other country has in North America and in very few parts of the world."

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