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Don't Be Too Pessimistic over Mexico's Energy Reforms

(AP)

August 14, 2015

July was bad for Mexico, the month ending with news of a gangland-style murder of journalist Ruben Espinosa and four others in Mexico City. It was the latest in a lengthening line of journalists targeted and killed for their profession—370 over the past 10 years, according to the Committee to Protect Journalists.

Coupled with the spectacularly embarrassing escape of drug lord Joaquín “El Chapo” Guzmán from his maximum security prison cell, as well as perceptions of corruption and self-absorption that continue to swirl around the ruling class, the political mood has turned sour. Headlines proclaiming that the 2012 election of President Enrique Peña Nieto would usher in “Mexico’s moment” seem long ago and far away.

In truth, however, just as expectations for the Peña Nieto government ran far beyond any reasonable ability to meet them, so too has pessimism now overtaken a more realistic assessment of Mexico’s prospects. This includes energy, the crown jewel of the government’s widely-praised reform efforts.

For more than 75 years, the Mexican energy sector was closed to foreign investors; the 1938 nationalization held up hydrocarbons as the pre-eminent example of national patrimony and sovereignty. For a time the sector flourished, particularly with the massive Cantarell discovery in 1976.

But that field is ageing, and in the meantime, the autarkic nature of investment restrictions kept out the advanced technology, capital, and management expertise necessary to address production declines and high costs. Energy was intentionally excluded from the North American Free Trade Agreement, and competitiveness and economic development suffered....

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