Mexican Energy Reform Proposal May Boost Bonds

The energy reform proposal sent to the Mexican congress by president Felipe Calderon is an important first step to improving the country’s oil sector, Fitch’s senior director of foreign ratings Shelly Shetty tells LatinFinance. “We’ve seen a decline in production levels in Mexico and clearly a reform is needed to maintain and boost both investment and production levels in the oil sector,” she says. But this is not an optimal reform, Shetty says, since it does not permit full scale private sector participation. “However, it does allow for greater financial and budgetary flexibility for Pemex, and allows for enhanced corporate governance which should help the company to increase investment in the sector,” the analyst states. If the reform were to pass, it would have a pretty important symbolic importance, given the continuous opposition in Mexico to allowing any form of private participation in the oil sector. “One has to monitor the political debate,” Shetty says. Impact on Pemex and sovereign bonds will depend on how far the proposal advances in congress, says Alfredo Coutino, senior economist for LatAm at Moody’s Economy.com. “If there is a lot of resistance, we will not see a positive answer in the bonds and in the ratings of the country and the company,” Coutino says. However, if the reform is approved even with modifications, bonds will receive a positive boost. “In the medium to long term the answer will be positive for the bonds,” he adds.