Mexican President-Elect Andrés Manuel López Obrador and his chief of staff are sending conflicting messages on energy policy, a recurring theme throughout the campaign that has continued since the former’s landslide July 1 election.
In a press conference earlier this month, López Obrador, known popularly by his initials AMLO, criticized the de-nationalization of the oil sector by the current government as “a rotund failure,” citing that the constitutional reform failed to attract investment or reverse the current trend of declining oil output.
López Obrador has been especially critical of bid rounds conducted under the reform, accusing winning firms of not fulfilling their investment commitments and ordering that the awarded contracts, 107 in total, be placed under the microscope for possible irregularities.
However, just a couple days after the press conference, his chief of staff, Alfonso Romo, struck a much friendlier tone in comments to local media, saying that López Obrador’s transition team would be meeting with the bid round winners over the coming weeks to discuss ways to remove bureaucratic red tape standing in the way of private sector investment.
The transition team will seek to learn “what we have to do … to remove these barriers in order to make the energy reform a reality,” local paper Reporte Indigo quoted Romo as saying. The contracts will be reviewed “with the spirit of removing any doubt that we’re going to support what’s been done.”
López Obrador’s respective designees for finance minister and deputy finance minister, Carlos Urzua and Gerardo Esquivel, have also sought to quell market concerns over some of the president-elect’s more radical energy proposals, namely a multibillion-dollar revamp of the refining segment and the freezing of gasoline prices.
Esquivel said earlier this month, for example, that the new government would not sign off on any projects that would add to the debt of national oil Company Petróleos Mexicanos (Pemex), widely cited as the world’s most indebted Big Oil company.
“The way that we have been thinking throughout the presidential campaign and the transition period...is that you should listen more to what López Obrador says, rather than what his team is saying,” Eurasia Group’s Carlos Petersen, Latin America country risk analyst, told NGI’s Mexico GPI.
López Obrador’s advisers have often “tried to either water down or to give some more nuance to some of López Obrador’s statements, and in many occasions, if not in all of them, López Obrador afterwards came back to his original positions and contradicted again what his advisors were saying,” Petersen said. “The best example, actually, is energy.”
Petersen explained that from the beginning of López Obrador’s campaign, the candidate spoke of his plans to build new refineries, an idea that many of his “more business-friendly or moderate collaborators” warned against, saying that the immense funds required could be better spent elsewhere and that the plan should be modified.
“This clearly didn’t happen, and we are still with what López Obrador promised at the beginning of his campaign.”
Since the election, López Obrador has reaffirmed his commitment to the refinery plan. This proposal, along with possible suspension of the bid rounds and freezing of fuel prices, has drawn dire warnings from analysts, credit ratings agencies, and, most recently, current Energy Minister Pedro Joaquín Coldwell.
In an interview Thursday with the newspaper Excelsior, Coldwell cautioned that Mexico will require an estimated US$30 billion of annual investment to reverse the steady decline in hydrocarbon production and reserves, money that Pemex and the federal government simply don’t have.
“It’s impossible for one company, no matter how big or powerful, to have the technological and operational capacity to exploit petroleum in such a vast diversity of fields,” Coldwell was quoted as saying.
The outgoing minister also pointed out that the refining business has not been profitable in Mexico for more than 30 years.