With a new president at its helm, Mexico embarked on a chain of reforms in 2013. These aimed to make the country’s education system, fiscal policies, and energy and telecom sectors more efficient, productive and competitive. Economists quickly raised their estimates of Mexico’s economic growth — but the country’s economy has since underwhelmed as participants realized that implementing the reforms would take more time than initially expected.
Mexico put the final touches on its energy reform a year ago, opening the sector to private investment with the aim of making it more efficient. Production at Pemex had been declining for a decade, and a lack of investment in exploration and extraction hindered the state-owned company’s ability to compete. Already the sector is attracting project financing investment and, in the spring, BlackRock and First Reserve made a marquee international equity investment in Mexico’s energy industry, by buying stakes in the Ramones II natural gas pipeline.
Yet a year after the reform, and despite a torrent of enthusiastic comments on the country’s oil and gas assets, Pemex drew in weak demand in an auction of its projects, tendering just two of the 14 blocks on the table.
Officials will be hoping for better luck when the state electricity commission, CFE, advances with tenders on more than two dozen projects. The transformation of CFE is another leg to the energy reform, alongside the changes for Pemex. CFE will have to split its generation, transmission and distribution business by the end of next year — and it will face competition to sell and deliver power.
It is planning on tendering $10 billion of projects. The government is seeking to ramp up energy imports and generation capacity, and has created an electricity spot market to make the sector competitive to feed the economy’s industrial sector and rising electricity demands.
Elsewhere, Mexico’s manufacturing sector, particularly its automotive industry, is forging ahead. As the US economy picks up, Mexican exports to the northern neighbor should lift its own growth. Already, indications are positive: automotive production increased by 8.1% in the first half of the year, the largest jump in the sector’s history. Mexico’s industrial sector is set to push the country’s demand for energy, and the government is ramping up pipeline projects in a bid to increase capacity and lower costs. LF