Mexico's Energy Sector Faces Large Hurdles

Almost overwhelming obstacles are blocking competition and change in Mexico's natural gas and electricity sectors and are going to take time and private investment to overcome, according to one of the country's energy commissioners.

Speaking at NGIs GasMart/Power 2001 conference in Tampa last week, Dr. Raul Monteforte said four dilemmas ---- fiscal, financial, energy reform and environmental protection reforms --- have to be resolved before the country can effectively move forward.

However, the obstacles are intertwined and complicated, and will require a considerable investment of time and money, something Monteforte said is in short supply.

It is not an easy time in Mexico, said the CRE commissioner, who completes his five-year term this year. The Mexican economy has sustained a high rate of growth in the last five to six years, and expects to continue a 7% growth pace in this decade. Tied to the U.S. economy, Mexico had one of its highest rates of growth ever in 2000, and while it has slowed in recent months to match the United States, Monteforte said energy sector reforms have to continue regardless.

The trend to watch for, Monteforte said, is the growth of the natural gas market. While the country is still oil intensive --- it is considered one of the top five leading oil producers in the world --- new development is moving more toward natural gas. However, because of its old plants and poor transmission, Mexico's infrastructure has to be completely overhauled.

There is work being done, however, and most of the growth has been in the northern part of Mexico, with power plants under way near the borders of Texas and California. Even though it has the energy, both in oil and natural gas, the country will remain a net importer of natural gas for at least 10 more years, Monteforte said, because of a shortfall in exploration and production, and a lack of adequate transmission and distribution.

We have had some relative success in gas reform, he said, but a great deal still needs to be accomplished. In the past five years, CRE has issued 95 permits for new power plants, and installed almost 40,000 kilometers of pipeline. As important, he said, investment commitments continue to build, and in five years, have totaled almost US$2.2 billion. We are building quickly and extensively.

However, many of the issued permits remain in the permitting stage, and physical construction is slowly taking off. Still, Monteforte said a number of difficulties and insufficiencies have to be overcome, including unattractive investment conditions for feasible projects.

An extensive energy reform package is on the agenda for Mexico's Congress this year, and Monteforte said he expects some work to be accomplished this month and again in September. The package, which would overhaul the electricity sector, has the backing of reform-minded President Vicente Fox, elected last fall. Monteforte said he could not predict what will happen with the extensive reforms, but the legislators have to be persuaded that the energy sector must be overhauled.

©Copyright 2001 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.