After hundreds of members of Mexico’s energy sector resigned or were laid off from government posts following the appointment of President Andrés Manuel López Obrador in December 2018, industry insiders fear another exodus of qualified experts is soon to follow.

The reason is the recent passage of the Mexican “Federal Austerity Law,” ratified in congress in November. While the law is designed to reduce the spending of Mexico’s state employees, it also includes a caveat that prohibits former public servants to “occupy positions in companies they have supervised, regulated or of which they have had privileged information while working in a public position” for at least 10 years after leaving government roles.

Approval of the law generated even more uncertainty for the energy industry following what was already a challenging first year for the sector under López Obrador. In his first 14 months in office, the president cancelled oil and natural gas auctions for private companies, slashed budgets for energy regulatory bodies and committed to invest billions of dollars in a new refinery while halting plans for further renewable energy development.

Now, industry members think the austerity law could lead to further brain drain and dissuade qualified energy experts from taking government jobs.

“With the austerity measures adopted by this government, there was a significant loss of talent, which was voluntary and involuntary (resignations and layoffs),”  wrote Rosanety Barrios, a Mexican energy expert who worked previously at the Energy Secretary (Sener), in a message to NGI’s Mexico GPI. “Now with this law, those that remained in their positions and already accepted lower salaries might have personal and professional opportunities totally blocked after they leave government.”

As a result, thousands of government employees, both in the energy industry and other sectors, filed legal injunctions in hopes the new law will not apply to them. Some government energy employees, including at the National Hydrocarbons Commission (CNH) and Energy Regulatory Commission (CRE), resigned before and immediately after the legislation passed.

“The public sector, in most cases, is highly specialized,” said David Rosales, midstream and downstream partner at Talanza Energy and a former government official at Sener. Rosales questioned the text of the new law that mentions government employees’ access to “privileged information while working in a public position.”

“That could be very broad for some positions, such as commissioners, ministers, deputy ministers, directors and executives, and could make them ineligible to work in every company in the sector,” he told NGI’s Mexico GPI. “Without a doubt, it will inhibit the interest of the experts within the energy sector to work at a government institution or regulatory body.”

Outlook Grim

Experts agree that the energy outlook for the second year of the López Obrador administration is grim. Angie Soto, managing director of Nexus Energía Mexico, told NGI’s Mexico GPI that she forecasts a “slowdown” in the industry in the short-term. Miriam Grunstein, chief energy counsel at Brilliant Energy Consulting, said she thinks Mexico’s energy and natural gas industry is “going to hit a brick wall” in the next few years.

The recently passed austerity law will only further complicate things in the already ailing energy industry, Rosales said.

“I do think it’s feasible that an important number of public servants will consider it appropriate to abandon public service now” as a result of the new law, Rosales wrote, adding that “the personal and professional risks they take are very big” should a state official decide to remain in a government position.

While unpopular among the members of the energy industry, the austerity law is an extension of López Obrador’s repeated goal to reduce and eradicate corruption within the public sector. One of the articles included within the law reads that “contracts signed between national and foreign companies by means of traffic of influences, corruption or that cause damage to public finances will be voided.” The legislation adds that its intention is to “combat social inequality, corruption, greed and squandering of national goods and resources.”

Though by barring former public officials from working in the private sector for 10 years, the government’s efforts to weed out corruption might in turn spark a wave of resignations over the coming months.

“Many high and mid ranking government officials are leaving to assure they aren’t subject to the application of this law,” Rosales wrote. “I think the federal government and regulatory agencies are taking an enormous risk: They will lose the opportunity to attract experienced people that could make great contributions, as well as young talented employees that recently entered the sector and considered these institutions to be a leaping off point for their careers”