Anxiety, hope north of the bor­der as Mex­ico in­au­gu­rates pres­i­dent

Wor­ries grow over oil, en­ergy sec­tor, trade and for­eign in­vestors

San Antonio Express-News (Sunday) - - Business - By Emily Pick­rell CON­TRIB­U­TOR

MEX­ICO CITY — Mex­ico in less than two weeks will in­au­gu­rate a new pres­i­dent, a leftist and pop­ulist elected on prom­ises of restor­ing na­tional pride and shak­ing up the sta­tus quo and rep­re­sent­ing a po­ten­tially rad­i­cal shift in Mex­i­can pol­i­tics. It’s a new era with broad im­pli­ca­tions for Texas busi­nesses and the econ­omy.

Mex­ico is by far the state’s big­gest trad­ing part­ner and for­eign mar­ket, ac­count­ing for more than one-third — 37 per­cent — of Texas ex­ports, ac­cord­ing to the U.S. Com­merce Depart­ment. An­drés Manuel López Obrador, known as AMLO, and his party swept the elec­tions held this sum­mer, gain­ing a de­ci­sive ma­jor­ity in Congress while cre­at­ing anxiety across the bor­der about whether mar­ket re­forms put in place by his pre­de­ces­sor, En­rique Peña Ni­eto, will un­ravel and the na­tional gov­ern­ment will re­sume a larger role in the Mex­i­can econ­omy.

The lit­mus test is likely how López Obrador ap­proaches the over­haul of the coun­try’s en­ergy sec­tor, which was con­trolled by the state for 75 years. Con­sti­tu­tional changes ended the mo­nop­oly of the state-owned oil com­pany, Petróleos Mex­i­canos, or Pe­mex, and opened oil and fuel mar­kets to for­eign in­vest­ment com­pe­ti­tion in 2014. Those re­forms be­came con­tro­ver­sial when gaso­line prices rose sharply, spurring ri­ot­ing early last year.

López Obrador has sig­naled that he does not plan to undo Peña Ni­eto’s en­ergy mar­ket re­forms, which have at­tracted bil­lions of dol­lars in in­vest­ment into de­vel­op­ing new oil fields, build­ing fuel stor­age and distri­bu­tion fa­cil­i­ties and con­struct­ing new pipe­lines to trans­port re­fined pe-

troleum prod­ucts and nat­u­ral gas. But his pro­pos­als since win­ning the elec­tion, such as build­ing new Pe­mex re­finer­ies to re­duce fuel im­ports, has raised con­cerns among re­fin­ers and oil com­pa­nies across the bor­der.

As part of fulfilling his pledge to root out cor­rup­tion, López Obrador has said he plans to re­view the sev­eral auc­tions in the last three years that awarded 90 blocks, pep­pered through­out the coun­try and Gulf of Mex­ico too pri­vate op­er­a­tors, rais­ing over $150 bil­lion in com­mit­ments for new in­vest­ment. It’s a ver­i­ta­ble who’s who of en­ergy com­pa­nies, in­clud­ing Royal Dutch Shell, ExxonMo­bil and Chevron.

Some of these com­pa­nies have ex­pressed con­cern that ad­di­tional rounds of bid­ding may not take place un­der the new ad­min­is­tra­tion, even though the re­forms made un­der Peña Ni­eto en­vi­sioned fur­ther auc­tions down the road.

An­a­lysts, how­ever, say the López Obrador may have no choice but to ad­vance the en­ergy re­forms and work with for­eign com­pa­nies and in­vestors. Three-quar­ters of a cen­tury of mo­nop­oly con­trol left Pe­mex os­si­fied and in­ef­fi­cient, un­able to make the in­vest­ments needed to mod­ern­ize the na­tion’s oil in­dus­try, where pro­duc­tion has fallen for years, and de­velop the tech­ni­cal know-how to re­verse the trend.

A lack of re­fin­ing ca­pac­ity, in part due to fail­ures to main­tain the re­finer­ies, has re­quired Mex­ico to im­port in­creas­ing amounts of gaso­line in re­cent years. More than half of the 800,000 bar­rels of day ex­ported by the United States in 2017 went to Mex­ico, much of it from Gulf Coast re­finer­ies, ac­cord­ing to the U.S. En­ergy Depart­ment. López Obrador has pledged to bring an end to fuel im­ports within three years, but that will re­quire mas­sive in­vest­ment in up­grad­ing old re­finer­ies and build­ing new ones.

“Ei­ther you face the mu­sic and re­al­ize you have no choice other than to move for­ward with the re­form,” said Michelle Mi­chot Foss, an en­ergy fel­low at the Baker In­sti­tute for Pub­lic Pol­icy at Rice Univer­sity. “Or, if you are go­ing to roll back and make Pe­mex great again, you have to be pre­pared to give the com­pany in­de­pen­dence and bud­get to do it.”

In­vestors also are watch­ing the power sec­tor, where in­vest­ment rules that lim­ited for­eign com­pa­nies were lifted in 2014. Three pub­lic auc­tions for new power gen­er­a­tion projects have taken place in the last four years, rais­ing $9 bil­lion in promised in­vest­ment for new so­lar and wind power plants. It’s a sec­tor that Mex­ico’s na­tional power com­pany, the Fed­eral Com­mis­sion for Elec­tric­ity, or CFE, has his­tor­i­cally dom­i­nated.

The path for at­tract­ing pri­vate in­vest­ment has in­volved dis­man­tling CFE’s mo­nop­oly po­si­tion and try­ing to de­velop a com­pet- itive power mar­ket sim­i­lar to that in Texas. It’s an­other area where López Obrador has been vague, in­di­cat­ing that he wants CFE to in­crease power pro­duc­tion. but not nec­es­sar­ily at the ex­pense of for­eign in­vest­ment.

More wind and so­lar projects are needed to meet the coun­try’s grow­ing elec­tric­ity de­mand and a na­tional goal of gen­er­at­ing 35 per­cent of power from re­new­ables by 2024 and 50 per­cent by 2050. That will re­quire bil­lions in for­eign in­vest­ment, said Robert Down­ing, an at­tor­ney with Green­berg Trau­rig spe­cial­iz­ing in Latin Amer­i­can en­ergy deals.

“Peo­ple are look­ing to see what hap­pens over the next two months in the tran­si­tion af­ter De­cem­ber,” Down­ing said. “Some clients have a ‘wait and see’ at­ti­tude, while oth­ers say, ‘We be­lieve that Mex­ico is an at­trac­tive mar­ket for en­ergy in­vest­ment and we want to pro­ceed.’ ”

In­vestors and busi­nesses are also en­cour­aged by López Obrador’s state­ments that he will to sup­port the new trade deal slated to re­place the North Amer­ica Free Trade Agree­ment, or NAFTA. That’s very good news for Texas, ac­cord­ing to Dun­can Wood, di­rec­tor of the Mex­ico In­sti­tute at the Woo- drow Wil­son Cen­ter, a Washington think tank.

Few states have ben­e­fited as much as Texas from NAFTA, which economists es­ti­mate cre­ated 1 mil­lion jobs in the state. Vi­brant re­gional economies and busi­nesses have grown from the free flow of goods feed­ing the sup­ply chains of man­u­fac­tur­ers and fu­el­ing lo­gis­tics and trans­porta­tion busi­nesses. Nearly $200 bil­lion in goods and ser­vices move back and forth across the bor­der each year.

“With ev­ery new ad­min­is­tra­tion comes the prom­ise of change and that means new pro­grams and new op­por­tu­nity for busi­ness and trade,” said Dino Bara­jas, an en­ergy at­tor­ney with Akin Gump with decades of ex­pe­ri­ence work­ing in Mex­ico. “Busi­ness that are able to be first movers and start build­ing new bridges into the Mex­i­can busi­ness com­mu­nity will have the big­gest pay­off.”

Ros­alba Ran­gel Bautista is a real es­tate agent in one of the coun­try’s most popular ex­pat re­tire­ment lo­ca­tions, San Miguel de Al­lende in Cen­tral Mex­ico. Ran­gel, who grew up in this small colo­nial city and has sold real es­tate there for 30 years, said she ex­pects for­eign tourists and re­tirees to keep com­ing to visit, spend money and buy homes af­ter López Obrador as­sumes the pres­i­dency. More than 10,000 for­eign res­i­dents, many from Texas, live in San Miguel.

“We have been wel­com­ing for­eign­ers here in San Miguel since the Sec­ond World War,” said Ran­gel. “Re­gard­less of who is pres­i­dent, they keep com­ing in dur­ing the high sea­son and rent or buy, to make their small in­vest­ment in San Miguel.”

Eloisa Sanchez / Getty Images

An­drés Manuel López Obrador will be in­au­gu­rated as pres­i­dent in less than two weeks. The change in ad­min­is­tra­tion is cre­at­ing anx­i­eties among busi­nesses north of the bor­der.

Ale­jan­dro Ce­garra / Bloomberg

An­drés Manuel López Obrador says he’ll back the deal slated to re­place NAFTA, eas­ing some con­cerns.

Ra­mon Espinosa / Associated Press

The test for López Obrador, shown with sup­port­ers, is how he ap­proaches the over­haul of the coun­try’s en­ergy sec­tor.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.