Energy reform: Mexico’s Newest Revolution to Build a New Country

opportunities for U.S. companies involved in the hydrocarbons sector, as well as infrastructure and other oil field services.The electricity sector is federally owned, with the Federal Electricity Commission (CFE) essentially controlling the whole sector; private participation and foreign companies are allowed to operate in the country only through specific service contracts. Attempts to reform the sector have traditionally faced strong political and social resistance in Mexico, where subsidies for residential consumers absorb substantial fiscal resources. The electricity sector in Mexico relies heavily on thermal sources (75% of total installed capacity), followed by hydropower generation (19%). Although exploitation of solar, wind, and biomass resources has a large potential, geothermal energy is the only renewable source (excluding hydropower) with a significant contribution to the energy mix (2% of total generation capacity). Expansion plans for the period 2006-2015 estimate the addition of some 14.8 GW of new generation capacity by the public sector, with a predominance of combined cycles. Mexico’s historic energy reform is completely restructuring the Mexican energy sector, opening the oil & gas industry to private participation, revamping the electricity sector, and generating numerous opportunities across the entire energy sector. Driven by the need to support expanded oil and gas production, supply gas to new power plants, and deliver more affordable electricity, the reform also presents important investment opportunities for new entrants and industry stakeholders. Mexico is undertaking a complete transformation of its energy sector. In December 2013, Mexico’s Congress approved a series of constitutional amendments that will end the 75-year state oil monopoly and open oil and gas exploration and production to foreign investment. Just last August, Mexico’s Congress approved secondary legislation implementing the necessary reforms for the liberalization of the energy sector (the Secondary Legislation). The energy reforms transform Pemex into a “productive state enterprise” with more autonomy and a lower tax burden than before, but make it subject to competition with private investors. They create different types of contracts for private companies interested in investing in Mexico, including production-sharing and licensing; allow companies to post reserves for accounting purposes; establish a sovereign wealth fund; and create new regulators. The impetus for Mexico’s energy reform is clear: the government seeks private investment to boost oil and gas exploration and production, which have been in decline for the past 10 years. In particular, the government hopes that private investors will assist the state-owned petroleum company PEMEX to exploit future fields, including Mexico’s promising shale oil and gas fields and its deep-water oil resources. The opening of Mexico’s oil and natural gas sector could expand U.S.-Mexico energy trade and provide opportunities for U.S. companies involved in the hydrocarbons sector, as well as infrastructure and other oil field services. The electricity sector is federally owned, with the Federal Electricity Commission (CFE) essentially controlling the whole sector; private participation and foreign companies are allowed to operate in the country only through specific service contracts. Attempts to reform the sector have traditionally faced strong political and social resistance in Mexico, where subsidies for residential consumers absorb substantial fiscal resources. The electricity sector in Mexico relies heavily on thermal sources (75% of total installed capacity), followed by hydropower generation (19%). Although exploitation of solar, wind, and biomass resources has a large potential, geothermal energy is the only renewable source (excluding hydropower) with a significant contribution to the energy mix (2% of total generation capacity). Expansion plans for the period 2006-2015 estimate the addition of some 14.8 GW of new generation capacity by the public sector, with a predominance of combined cycles. Mexico’s historic energy reform is completely restructuring the Mexican energy sector, opening the oil & gas industry to private participation, revamping the electricity sector, and generating numerous opportunities across the entire energy sector. Driven by the need to support expanded oil and gas production, supply gas to new power plants, and deliver more affordable electricity, the reform also presents important investment opportunities for new entrants and industry stakeholders. Mexico is undertaking a complete transformation of its energy sector. In December 2013, Mexico’s Congress approved a series of constitutional amendments that will end the 75-year state oil monopoly and open oil and gas exploration and production to foreign investment. Just last August, Mexico’s Congress approved secondary legislation implementing the necessary reforms for the liberalization of the energy sector (the Secondary Legislation). The energy reforms transform Pemex into a “productive state enterprise” with more autonomy and a lower tax burden than before, but make it subject to competition with private investors. They create different types of contracts for private companies interested in investing in Mexico, including production-sharing and licensing; allow companies to post reserves for accounting purposes; establish a sovereign wealth fund; and create new regulators. The impetus for Mexico’s energy reform is clear: the government seeks private investment to boost oil and gas exploration and production, which have been in decline for the past 10 years. In particular, the government hopes that private investors will assist the state-owned petroleum company PEMEX to exploit future fields, including Mexico’s promising shale oil and gas fields and its deep-water oil resources. The opening of Mexico’s oil and natural gas sector could expand U.S.-Mexico energy trade and provide