Mexico: Energy Reform Brings Investment

November 10, 2017

Hydrocarbons Mexico

The government spoke about the opportunities that Energy Reform has brought to Mexico, especially in infrastructure and employment projects.

The Energy Regulatory Commission (CRE) announced a MXN$345M investment to improve the fuel storage and distribution in Lázaro Cárdenas port.  

CRE representative, Guillermo Pineda, said that the investment is possible due to Energy Reform and that the government estimates that Mexico will receive additional investments of US$251B by 2031.

Pineda commented that CRE is focusing on guaranteeing energy supply around the country, but acknowledged that “the main challenge is to ensure that energy reaches all industries, businesses and homes in the quantities demanded, with appropriate quality and at competitive costs.”  

So far, CRE has granted 1,946 transportation and distribution licenses, 151 storage permits for refined-products and 12,047 service station authorizations, among hundreds of other licenses to operate in the Mexican energy market.

Even though detractors of Energy Reform said that companies will only hire foreign personnel, affecting the local workforce, the government said that there are laws to encourage the hiring of local labor in oil producing regions.

Companies will have to hire 90% of local labor and the remaining 10% may be foreign personnel, when their technical specialty is justified.

Employers' Confederation of the Mexican Republic (Coparmex) president, Héctor Dagdug, said that some laws protect the interests of Mexicans on this issue.

“Article 7 of the Federal Labor Law (LFT) establishes that companies that work in the country must have 90% of Mexicans,” he said, after adding that high unemployment levels in the industry are a consequence of Pemex’s crisis.

Dagdug added that companies might offer contracts of indeterminate time, such as 20 or 30 hours per month or four days a month, among other options, and this will boost employment in the regions.

“It is not too late for us, as entrepreneurs, to go out and rescue the human capital that was fired,” he said.

Bottom-Line: Even though the opportunities that Energy Reform has brought to Mexico are undeniable, there are still challenges to overcome.

Pineda recognized that there is still a long way to go to create a competitive energy market, which is quite unusual in Mexican politicians because they usually are characterized as being over-optimistic.

The domestic gas market is facing tough times in the country and prospects for production are negative for the short and long term. Pineda is right and Mexico needs a strong natural gas market, but the government must do more to achieve it.

What about reducing the tax burden for gas projects?

Also, local labor quotas have always been a source of tension.

Oil companies need well-trained and specialized staff and Mexico should not fall into the trap of creating laws that discourage investment and projects due to a lack of trained personnel.

The relationship between communities and the oil industry is a subject of great interest for all and the government must create the appropriate conditions to maintain an environment that benefits all parties.

Tags: energy, energy reform, hydrocarbons, investment, latam, mexico, oil and gas
Posted in LatAm, Energy, Energy