If new natural gas production does not come on-stream in Mexicoin the next two to three years, the country will have to importmore than half of its gas needs, according to a new report from thecountry’s energy regulator Comision Reguladora de Energia. Thecountry now imports about 7% of its gas, mostly from South Texas.

Electric power demand in Mexico is forecast to grow at an annualrate of 6% in the next 10 years, which will require an annualinvestment of US$5 billion. However, the existing infrastructurewill only last until 2004, CRE warned, and new investments arenecessary to install more generating capacity and modernizetransmission and distribution grids.

At the same time, natural gas demand will grow annually at arate of 9% in the next 10 years, requiring an investment of US$2billion per year to finance exploration and production programs,and add storage and distribution facilities. Despite its largeknown gas reserves, Mexico is a net importer of natural gas,importing most from the United States.

According to CRE, the electric and gas sectors will require acombined investment of about US$100 billion over the coming decadeto meet the projected increases in demand. To attract this type ofinvestment, CRE said that Mexico’s government will have to provideclear and well-defined rules for the energy sector, earn thecredibility of investors and promote competition and a levelplaying field for private investment against established publicindustries.

CRE currently oversees 162 generation permits totaling 11,999 MWinstalled capacity, which represents a US$6.92 billion totalinvestment. That’s compared to year-end 1995, when CRE’s generationpermits totaled 232 MW and an investment of US$145 million.

The private sector, said the report, is developing 42% of thecapacity and sells power under contract to the state-owned powercompany, Comision Federal De Electricidad (CFE). CRE also reportedthat when it began natural gas distribution and transportmanagement in 1996, there were 381 kilometers of gas pipelines andnetworks in Mexico, with a total investment of about US$131million.

Today, CRE oversees 35,518 kilometers of natural gasdistribution pipelines and associated infrastructure serving 10million in 24 states. All told, the investment today is aboutUS$2.2 billion, CRE said. Distribution hubs include Mexico City,Monterrey, Guadalajara, Toluca-Tlaxcala, Saltillo, Tijuana andMexicali.

Whether to open up the country’s energy sector to more privateinvestment now falls into the hands of Vicente Fox, Mexico’s newpresident, who begins a six-year term today. Fox, who surprisedopponents with an upset in July’s elections, has promised reformswithin the government to make it less political and more efficient.A former Coca-Cola de Mexico executive, he wants to overhaul thecountry’s tattered infrastructure by constructing new roads, endinggovernment corruption and improving the educational system.

Fox also has vowed to reform the state’s monopoly-run energyindustry, criticized by industry and CRE as energy prices have risen(see Daily GPI, Nov. 7). While the CREallows private investment for power plants and pipelines, Mexico’sPetroleos Mexicanos (Pemex) is the state-run energy monopoly. It haslong provided the government with one-third of its overall revenues,and its investments are more limited than those made by the privatesector.

Whether the new president plans to open up the country to moreprivate investment remains questionable. Because he was elected asan outsider, Fox is expected to have some trouble getting anaggressive agenda passed with the legislature. He has vowed toreduce Pemex’s financial disincentives, but so far, no plan hasbeen laid out. A reform plan proposed by former Mexican presidentErnesto Zedillo in 1999, which was rejected by the InstitutionalRevolutionary Party (PRI) parliamentary group in Mexico’s senate,is expected to be revised by Fox and resubmitted to the Congressthis month.

In an indication that standards for reform will be proposed, Foxthis week appointed businessman Raul Munoz Leos to run Pemex.Munoz, who has no political ties, is a chemical engineer and aformer executive with the Mexican unit of DuPont Co. Fox alsoappointed another businessman and chemical engineer, EduardoMartens, as Energy Minister. Martens will oversee the moreprivatized power sector.

Munoz comes into his post facing the task of ramping up gasproduction, as Pemex is the only company within Mexico supplyinggas. He also faces reducing Pemex’s plump workforce — it hasabout 130,000 employees, which is more than double the number ofcomparable private companies.

In a speech following his appointment, Munoz said he would workto increase competitiveness at Pemex, but added that it would be animportant source of future revenue for the government.

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