Chinese role expected in Mexico's energy reform

Updated: 2014-12-08 04:30

By PAUL WELITZKIN in New York(China Daily Latin America)

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Chinese role expected in Mexico's energy reform

From left: Mexican Congressmen Juan Bueno Torio and Rubén Camarillo Ortega; Enrique Perez Grovas, partner, Latin America Business Center, Financial Services, Ernst & Young LLP; Mexican Senator David Penchyna Grub; and Mexican Congresswoman Rocio Abreu Artiñano at the discussion on Mexico's energy reform on Dec 1 in New York at the Americas Society/Council of the Americas. Photo provided to China Daily

As Mexico opens up its energy sector to outside investment, China is expected to play a role especially in financing projects according to observers.

Last August Mexican President Enrique Peña Nieto signed a major series of energy reforms into law affecting the oil, natural gas and electricity sectors. Panelists at a Dec 1 forum on energy reform at the Americas Society/Council of the Americas (AS/COA) in New York agreed that the Mexican economy will reap major benefits from the new legislation, including the creation of over 2 million jobs and boosting the nation's gross domestic product (GDP) by 2 percent.

"After 70 years of a monopoly, private firms can invest in the oil sector," said Ruben Camarillo Ortega, a Mexican lawmaker and secretary of the energy commission involved in drafting the nation's energy reform. The legislation ended the monopoly power of state-owned Petróleos Mexicanos or Pemex. He also said private investment will now be encouraged in the electricity sector.

A huge loan from China nearly two years ago means it will be a participant in energy reform, according to Kevin Gallagher, associate professor and co-director of the Global Economic Governance Initiative at the Frederick S. Pardee School of Global Studies at Boston University.

"China's 2013 loan to Pemex for $1 billion guarantees China a seat at Mexico's energy reform table. The loan, from the China Development Bank and the ICBC, guarantees that China's CNOOC gets a piece of the action in terms of exploration and production. China is a net importer of oil and its firms are rapidly obtaining access and assets across the world. Until now China has had little access to Mexico. Now it is the first to contribute hard cash," he told China Daily in an e-mail.

However, Enrique Dussel Peters, director of the Institute for China-Mexico Studies, Universidad Nacional Autónoma de México, said China will play a minor role in energy reform, although the effect might be more relevant in the medium term (five years and more).

"China will have to start learning from (its) investment experiences in Latin America, in particular its failed railway infrastructure project in Mexico recently. There are still important details that Chinese firms have to learn about their participation in public biddings. In contrast, firms from other countries have started participating immediately in Mexico´s energy reform opening," he wrote in an e-mail to China Daily.

There will be ample opportunities for outside companies and investors to help increase oil production in Mexico. Noting that Pemex's crude production has been declining for 10 years, Mexican lawmaker Rocio Abreu Artinano told the AS/COA audience that Pemex needs investment and expertise to explore promising new fields.

"We need to integrate the new opportunity areas in the deep ocean," she said.

In the power sector, Peters said that Chinese concerns will be cautious and eventually participate in about 3-5 years. Companies like General Electric Co and Siemens AG, which has a long history in Mexico, will be able to integrate immediately into electricity participation, he said.

Despite China's ever-growing need for oil and natural gas, Peters said Mexico will become a secondary supplier. "Mexico´s oil potential is very small for China. The association between Russia and China, but also with Iran and Venezuela as well as investments in Iraq, put Mexico´s reserves in the shadows," he said.