A step forward in the modernization of Mexico's energy
sector, the long-in-the-making Mexican Energy Reform, substantially
diluted from its original to ensure passage through a divided
Congress, is still considered by experts as sufficiently
far-reaching to shore up the country's flagging oil
The Reform omits controversial risk-sharing alliances but allows
sweetened-service contracts with the private sector by including
performance-based incentives, leaving it up to PEMEX to come up
with competitive terms to entice investment. Legislators appear to
expect that not allowing foreign companies to book reserves will
not be a deterrent.
The main purpose of the legislation is to give PEMEX more
flexibility in contracting and in working with outside companies,
and to have more control over budgets and investment. The key
aspects of the Reform are:
The creation of a National Hydrocarbons Commission which will
be responsible, among other things, for approval of all exploration
and production projects, including levels of production and reserve
restoration and technology use.
The strengthening of the authority of the federal Ministry of
Energy as PEMEX's regulator and its role in the formulation of
national energy policy. A National Energy Council will be set up
with a mandate to devise an energy program to be submitted to
Congress for approval every year.
A new structure for PEMEX's corporate governance intended
to provide greater autonomy, independence and transparency. This
should increase PEMEX's accountability and ability to implement
Contracting with PEMEX will be excluded from the existing
federal procurement law. PEMEX's Board of Directors will have
discretion to set new rules and procedures for procurement and
contracting based on general criteria set forth in the new PEMEX
To authorize new schemes for incentive-based contracts
regarding exploration and production. Compensation is to be set on
the basis of performance criteria such as production enhancement,
efficiency, early completion, under-budget completion, etc.
"Citizen bonds" will be issued by PEMEX and placed on
the Mexican Stock Market with yield returns based on PEMEX's
performance. In addition to creating a new market, the bonds are
intended to improve PEMEX's accountability and disclosure of
results and performance.
The creation of a Law for the Sustainable Use of Energy aimed
at promoting energy efficiency and enhancing the use of alternative
methods for energy generation and sustainability. There is a
substantial emphasis on this part of the reform because current
alternate power represents only 5% of the country's total. The
government has set at least 25% as the five year target for the
Private companies will be allowed to participate in the
developing of terminals and storing facilities, as well as in the
transportation and processing of fuels and petroleum products.
The Reform was approved by the Mexican Senate last week and by
the Lower House on October 28, 2008. The date of proclamation has
not been announced but is expected to be shortly.
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