EconomyFinancialThe implications of AMLO's reform go beyond the electricity...

The implications of AMLO's reform go beyond the electricity market

The recent reform initiative of President Andrés Manuel López Obrador will have, if approved without changes, some implications in the oil and gas sector that have not been included in the discussion so far.

Although the reform –which has been colloquially referred to as electricity– respects the contracts granted to private oil companies after 2013, removes the independence of the National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE) and eliminates the figure of productive State company, which will have implications for the oil and its derivatives market, analysts say. “Although it is true that it is much more charged with electricity and that the primary effect is the disappearance of the wholesale electricity market, it also has an impact [in the oil sector], to begin with, it is disappearing the authorities in energy matters,” explains Julia González Romero, lawyer at the González Calvillo office.

to make way for them to become state agencies. The declarations of the main people responsible for energy matters indicate that with this the Federal Electricity Commission would acquire a main role in the design of the electricity policy, even above that of the Secretary of Energy, but until now the consequences have not been detailed. that the change would have on the operation and role of the national oil company.

A study by the consulting firm IPD Latin America assures that the change in the state-owned Pemex could lead the company to reduce the transparency of its decisions, eliminate its board of directors or independent directors, and even cause the Ministry of Finance to take over formally of the debt of the oil company.

“Making Pemex a public entity could pave the way for all its assets and liabilities to be absorbed by the government. [The change] is consistent with AMLO’s repeated discourse that Pemex’s debt is sovereign debt,” the document says. “The return to a legal designation as a public entity and the series of ancillary law changes that could logically result are likely to rapidly violate bondholder covenants and United States Securities and Exchange Commission regulations, including the Sarbanes-Oxley Act (a US federal law) which extensively covers disclosure and audit requirements.”

Although, unlike the electricity market, the legislation does not eliminate the free competition regime of the hydrocarbon market, analysts also place as a latent risk the role that the company could acquire in the planning of the energy policy or the probable modification of the contracts. which it has signed as an independent company from the federal government. “That Pemex is no longer private and becomes clearly an authority obviously has an impact on those who are its customers or suppliers,” says González Romero.

Since the six-year term began, government actions have been aimed at the oil company recovering market share in activities such as the sale of gasoline and liquefied petroleum gas to the public.

But the most important impact anticipated by the industry is related to the Energy Secretariat absorbing the work of the two market regulators, the CRE and the CNH. “The first concern of many exploration and extraction contractors was whether the disappearance of the CNH would have any impact on their contracts,” explains the lawyer.

The greatest risk, say the interviewees, is that decisions related to oil contracts – such as the approval of plans or the supervision of market activities – are made based on political criteria rather than technical bases. “The removal [of CNH] would completely change the rules of the game. Transparency would be one of the first things eliminated, since all decisions would be made by Sener and would have the potential to become totally political rather than technical,” says the IPD document.

The elimination of the CNH would also affect the transparency of information. The regulator regularly publishes data on the production of private companies and Pemex – which is often far from the data of the national oil company – and monitors the investments of all market participants.

And as for the rest of the oil sector, the disappearance of the Energy Regulatory Commission would jeopardize the issuance of new permits for some segments of the chain, such as those related to fuel sales stations, which have been paralyzed since the beginning of the current administration.

“They have focused on the electricity market, but the consequences in the upstream, midstream and downstream have been left out of the discussion,” says John Padilla, the analyst who directs IPD Latin America.

The open parliament for the discussion of the reform, which began last Monday in the Chamber of Deputies, has omitted to include issues related to the changes in Pemex and the elimination of autonomous bodies within the debate tables.

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