Strategic priorities in the Energy Ministry

Pedro Joaquín Coldwell
Energy Minister of Mexico

Q: What are the strategic priorities that will enable Mexico to achieve energy security in an efficient manner and boost the nation’s economy during President Peña Nieto’s term?
A: The Energy Ministry is committed to guaranteeing energy security for Mexico. We understand energy security to be the reliable, diversified, and sustainable procurement of quality energy within our national territory at affordable costs.

Mexico possesses vast energy wealth, and President Peña Nieto is well aware of this. Hence, a substantive and in-depth transformation of the Mexican energy system will be promoted during his term. The platform to design this transformation is the Pact for Mexico, a series of agreements that President Enrique Peña Nieto signed along with the country’s main political forces on December 2, 2012. The agreements cover diverse areas of public life in Mexico. In terms of energy, it was agreed to undertake an energy reform that will drive investment and development. On this basis, the reform that will result from Pact for Mexico will enable us to guarantee energy security for the country and grow at higher rates than at present.

Q: How do these priorities differ from the focus of past administrations, and in which areas are they a continuation of past energy strategy?
A: President Peña Nieto has remodeled Mexico’s energy policy, primarily in two ways: firstly, through the conversion of energy policy decisions into state policy. Developing the energy sector has been granted priority status, given that energy is imperative for social and industrial development of our nation. Secondly, this administration has broadened the scope of Mexico´s energy debate. Pemex will not be privatized; it will remain a public company, property of all Mexicans. This is not under discussion. The debate should center on how we can strengthen the organization and increase investment and performance in the hydrocarbons sector. This is also enshrined in the Pact for Mexico.

Adopting a comprehensive approach to deal with issues that had not been granted much weight in the past has also been proposed. These proposals entail, primarily, the capacity to invest in the electricity sector, the promotion of sources of renewable energy, and an overall review of our policy on subsidies, among other subjects.

Q: What is the significance of the energy sector in President Peña Nieto’s political agenda, and which level of urgency is given to energy reform?
A: The growth and dynamics of the energy sector are a priority on President Peña Nieto’s agenda. Mexico has a vast quantity of resources, and this administration is determined to exploit our country’s great energy potential. Nevertheless, our production has dropped from 3.4 million b/d in 2004 to 2.5 million b/d today. If this trend continues, our country could face an energy deficit by 2020. The purpose of the new energy policy we are pursuing is to stop this trend and return to positive growth figures.

Q: What will be the optimal timeline for successful energy reform. How does the calm approach that President Peña Nieto has taken towards achieving the necessary political compromises first, fit into that timeline?
A: The Pact for Mexico is very clear regarding the timetable agreed upon for the reforms. It establishes that, during the first half of 2013, design of the energy reform will begin, followed by an exchange of points of view and the development of technical objectives and arguments to back the proposal. Once this effort comes to fruition, necessary amendments to the existing legislation can be presented. The reform proposal will be discussed and we expect it to be approved before the end of the year, so as to begin implementing the significant changes that it will entail.

Q: What is the importance of achieving a more comprehensive energy reform that takes the entire sector into consideration, rather than just centering on Pemex?
A: While it is true that some progress was made as a result of the 2008 Energy Reform – such as the creation of the National Hydrocarbon Commission and bolstering the planning of the National Energy Strategy − it is important to recognize that there is still much to be done if the sector is to develop in an optimal way. The importance of the sector must be taken into account within the overall spectrum of economic activities in the country. Hence, planning must necessarily take into account the interactions both within the sector itself and in combination with other elements of the national economy.

Q: Under the National Energy Strategy 2013-2027, social development and energy equality are mentioned as principles to achieve long-term economic growth that is socially inclusive for the country. How does this contrast with the current Pemex mandate to focus on value creation?
A: The National Energy Strategy complements the mandate to create value for Pemex - and for the Federal Electricity Commission in terms of power generation - and takes the government’s objective of social inclusion into account.

The strategy is geared towards maximizing the opportunities that are contained in the legal framework in force, for the benefit of all Mexicans. Hence, it proposes a series of undertakings to identify, promote and take advantage of areas in which the social and private sectors can legally participate. The strategy mentions that the subsidies that for years were granted in a generalized manner to the population − including high-income sectors and even companies and industries − will henceforth focus on lower income groups through various types of support programs.

Q: What are the possibilities of opening the non-core businesses of Pemex to private investment, so that the NOC can focus its investment efforts on becoming more efficient at what it does best?
A: A modernizing reform will doubtlessly seek to increase autonomy in the administration of Pemex. With increased autonomy, the company will be able to make decisions that will optimize its profitability and the creation of economic value. At the same time, this approach envisions the participation of the private and social sectors in the non-essential activities of Pemex, as well as in projects that are not to be included in the investment portfolio.

An initial step has already taken place as a result of the 2008 Energy Reform through the establishment of integrated service contracts for exploration and production, which have allowed Pemex to increase its execution capacity while remaining Mexico’s sole oil proprietor. In regard to the rest of the value chain, Pact for Mexico mentions that the energy reform will seek to create an environment of competition in the economic processes of refining, petrochemicals and transportation of oil, and do so without privatizing Pemex’s assets. In this manner, we are seeking the complementarity between public and private investment.