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Pemex in need of reforms
MIAMI
Petroleumworld.com, June 26, 2009The discovery of new oil deposits largely depends on major investment with technologies not currently available to Pemex. - Latin Business Chronicle Special
The reform of the energy sector constitutes an important challenge, given the fiscal dependence on oil revenues and the lack of competition in the sector. The Mexican Constitution reserves the right to exploit national hydrocarbon resources to the state, and Pemex operates on its behalf. Oil reserves fell in December 2007 by 5.1 percent from the previous year. At current substitution and extraction rates of approximately 3 million barrels per day, proven oil reserves would last only nine more years.
The investment rates of the past two years are not sufficient to increase the production rates, or even to keep current production stable; on the contrary, the latter has been decreasing in the past two years.
In order to maximize Mexico 's oil wealth and production stability in the medium-term, important and rapid changes in Pemex's efficiency and financial performance as well as investment decisions and operations are needed.
A new fiscal regime was introduced in 2006, in order for Pemex to have additional resources, but the newly available funds are not sufficient given the importance of the investment needed. In addition, given the long delays in making investments operational in the industry, new alternative financing mechanisms for Pemex's investments are of utmost importance.
For this to materialize, reform of the company's corporate governance is essential to align management incentives with efficiency. The discovery of new oil deposits largely depends on major investment with technologies not currently available to Pemex. In order to have access to these technologies, the state will most likely have to enter into joint ventures with private oil companies or international state-owned energy groups. On a related note, Pemex's own social security regime should also be aligned to the recently reformed civil servants regime and possibly to the private-sector regime.The government needs to find ways to maximize the value of national oil resources. State-owned oil companies in other countries, such as Petrobras and Statoil, have been able to use competition generated by energy policy reforms not only to become global energy players, but also to share calculated risks with private oil companies in order to maximize their national energy resources. The current monopoly in oil refining and hydrocarbons distribution has often come at the expense of consumers.
A national energy reform agenda should aim at aligning worker productivity in national energy companies to international standards, creating a management structure that allows for greater flexibility and efficiency in investment, deregulating further barriers to private-sector investment in secondary energy sectors such as natural gas, oil refining, and electricity distribution and transmission.
Currently a constitutional energy reform is being discussed in Congress to address some of these challenges. While some of the changes envisaged would be historic, given Mexico 's long-standing stance against foreign participation in the oil sector, the new regulation may fall short of attracting investment from the major oil companies and helping the country to extract more oil in the short term, given that it does not provide for equity shares in the exploration and extraction projects, but rather intends to compensate international companies in cash for their services.
Private capital participation in refining and transportation activities will probably also remain excluded. Limitations in refining activities may be especially worrisome, considering that Mexico increasingly uses foreign refineries to process the majority of its oil, missing the opportunity to add value to hydrocarbons and remaining focused on selling crude oil. On a more positive note, the reform will allow Pemex to work more closely with the private sector and have more managerial autonomy.EDITOR'S NOTE: The World Economic Forum last week released The Mexico Competitiveness Report 2009 , the first ever study of this type for Mexico . Among other measures to boost competitiveness, it recommends energy reform. Here is a subchapter in the report on the topic.
Latin Business Chronicle
Story from Latin Business Chronicle
Latin Business Chronicle 06/26/2009
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