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Lopez Obrador mulling reversal of
Mexico's energy opening

Alejandro Cegarra/Bloomberg

Mexico's Energy Opening at Risk With Andres Manuel Lopez Obrador (AMLO) Mulling Reversal

- President to consider energy constitutional reform after 2021
- Plan comes amid corruption investigation into ex-CEO of Pemex

By Michael O'Boyle and Lorena Rios /Bloomberg

MEXICO CITY
Petroleumworld 07 30 2020

President Andres Manuel Lopez Obrador said he will consider reversing Mexico's energy opening after 2021, stoking the worst fears of international oil companies that have invested billions in the country since the end of the state monopoly.

Lopez Obrador may push to amend the constitution to change the energy legislation that ended almost seven decades of state control in the second part of his mandate, he said on Wednesday, bringing to the table for the first time the possibility of backtracking a major pro-business reform in Mexico.

While his government will respect the more than 100 contracts already awarded under the reform approved in 2014, he will seek to enshrine the rights of the state-owned energy companies Petroleos Mexicanos and the national utility CFE “so that there is no turning back” in subsequent administrations, he said.

“I said we will work with the current legal framework three years. If a constitutional reform is needed, we will embark on it in the second part of government,” AMLO, as the president is known, said during his daily morning press conference in Mexico City, without providing details.

A constitutional change to the energy opening would be the biggest blow yet to companies that have already invested $14 billion betting on Mexico's vast, largely unexplored oil territory. International firms, including Royal Dutch Shell Plc , Chevron Corp , BP Plc and Exxon Mobil Corp , have swarmed into the country since the first competitive oil auctions in 2015.

Yet they've faced criticism from Lopez Obrador for not producing oil quickly enough. A nationalist leader who put the revival of the state-owned oil producer Pemex at the center of his government's strategy, AMLO suspended new auctions until companies showed results as soon as he arrived to power in late 2018.

Mexico's private oil and gas firms lobby, known as Amexhi, said in a statement Wednesday that it plans to invest a further $40 billion in existing projects.

“The companies associated with Amexhi are ready to keep investing in Mexico, both under current contracts, as well as in new opportunities that may open up.”

Sensitive Moment

The possible reversal comes after the energy reforms of Lopez Obrador's predecessor Enrique Pena Nieto took a beating the past week when one of its high-profile advocates, former Pemex chief Emilio Lozoya, was brought to Mexico to face trial for alleged corruption. Last week, Lopez Obrador said that Lozoya had already given initial testimony that bribes were paid to lawmakers to pass the industry's reform.

The idea also surfaces at time when AMLO is getting ready to defend his party's lower house majority in mid-term elections next year. While the president remains highly popular, his standing in the polls has suffered amid a collapsing economy and mounting coronavirus-related deaths.

“This is important - it puts extra pressure on the 2021 election,” said Duncan Wood, director of the Wilson Center's Mexico Institute in Washington. “The opposition is going to have to work together to prevent another super majority” in the lower house of congress.

Wood, a proponent of private energy investment in Mexico, said Lopez Obrador was sowing uncertainty that would discourage new projects in other sectors, not just in the energy industry. “It's a huge disincentive.”

AMLO has said he will propose a referendum, likely in 2022, for Mexicans to vote on whether he should complete his six-year term. The constitutional reform to change the energy laws would be done after that referendum, assuming he wins it, he said on Wednesday.

— With assistance by Amy Stillman

By Michael O'Boyle and Lorena Rios from Bloomberg.

bloomberg.com
07 29 2020

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