Opening of Mexico energy market a benefit to NAFTA partners

more+
less-

On December 12, 2013, Mexico’s lower house of Congress finally passed energy reforms, opening the country’s state-monopolized industry after 75 years. The 353-134 vote will allow private companies as well as international investors to spend billions of dollars on this sector and boost Mexico’s economy.

While the bill’s proponents cheered “Mexico, Mexico”, its opponents chanted “traitors, traitors”. The latter went as far as lock the chamber and block it with chairs and tables to disturb the voting. This is because they fear that multi-nationals, especially from the U.S., will have a sort of domination over Mexico’s oil as they did in the 1930s.  Protestors held signs and Mexican flags outside the building shouting, “The homeland is not for sale! The homeland is to be defended!”

On the other hand, supporters like Exxon Mobil’s vice president of corporate strategic planning William Colton believe that the decision is “very good for the people of Mexico and the people everywhere in the world that uses energy.” The bill’s proponents expect the energy sector to add 1% to the country’s annual growth rate. However, the biggest effect will be felt by the U.S., Canada, and Mexico in the North American Free Trade Agreement.

Thomas Donohue, president of the U.S. Chamber of Commerce is very optimistic about the reforms. “We are going to be able to develop services and competencies in dealing with energy that are transferrable from one country to another. They all have some differences in commodities and have their own regulatory systems, but all of it will be in the context of a lot oil, a lot of gas, a lot of coal and a fundamental ability to attract manufacturing, to improve supply chain and to drive the creation of jobs and economic growth.”

Former Mexican energy secretary Luis Tellez also applauded what he believes to be “the most important structural change in the Mexican economy in the last 50 years.” Like others supporting the bill, he hopes that the reforms will create an integrated energy market in the North American region. This will ultimately create new job opportunities and counter the current economic inequality.

However, there are hurdles ahead of this reform. For starters, it is still unclear how the government will be writing and enforcing contracts with investors. The Mexican government needs to show that its reforms will improve citizens’ lives in order to put everyone’s minds at ease. That aside, Mexico’s left wing parties plan to promote a 2015 referendum that overthrows the laws.

President Enrique Pena Nieto already enforced the Reform last December 20. This is because he believes that the ageing refineries, inability to use the deep water drilling technology, and fluctuating oil production are a burden on the economy which can only be countered by opening the state-run industry.

The energy sector reforms are the sixth major change that Pena Nieto enacted within one year of taking office. Other sectors that experienced much needed improvement include education, telecommunications, taxes, and the political system. If Reforms can read the NAFTA market, all three partners could benefit from the agreement, as energy flux could be back and forth.