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Mexico’s New President Plans Bold Reforms in Energy Sector

Not even a week into office and Mexican President Enrique Peña Nieto has announced an ambitious, wide-ranging, and broadly supported plan to reform the country. The FT has details:

In a 34-page document called the Pact for Mexico, Mr Peña Nieto, of the Institutional Revolutionary party (PRI), set out what for many observers is the most ambitious reform agenda in years.

For a start, there is a proposal to introduce greater competition into the highly protected oil and gas sector, and to make the heavily unionised Pemex, the state oil behemoth, more efficient. There is an outline to shake up the hobbled education sector, currently controlled by Elba Esther Gordillo and her mighty teachers’ union. […]

In all, the document pledges 95 separate “commitments” ranging from political and judicial reform to a shake-up of the country’s police forces.

Analysts say that the Pact for Mexico is remarkable not only for its ambition but also because it carries the signatures of the country’s political leaders, from the leftwing Democratic Revolution party (PRD) to the conservative National Action party (PAN).

Though in these early stages Peña Nieto’s plans are vague, his ideas about what to do with the giant state oil company Pemex are particularly interesting. The new global energy landscape requires ambitious reform efforts, even in Mexico. Pemex, a centrally guided behemoth, was able to function in the old, more stable energy universe; a state-owned entity can manage a large oil field. But there will have to be many more entities involved in Mexico’s changing energy industry, which involves both deep water in the Gulf and unconventional hydrocarbons like shale gas on land (Mexico like the US and Canada is in the top five globally for shale gas and has promising geology for shale oil).

One of the reasons the U.S. is in the forefront of the new energy world is that we have not just major players and large players but thousands of small companies looking for new resources. The new geology of the hydrocarbon market in the 21st century requires a less centralized and top down approach. Figuring out how to reform or supplement Pemex to capitalize on the new opportunities may matter more for the future of Mexico than anything else the new president does.

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