Economy

Mexico Cannot Rest On Reserves In New Energy World

Not so green, Mexico
Not so green, Mexico
Luis Rubio*

-Op-Ed-

MEXICO CITY — I am no energy specialist, but after reading and listening to experts in recent months, I have learned about the fundamental requirements that should drive any major energy-sector reform. Can smart energy policy become the most powerful platform for Mexico’s economic growth?

Ramón Espinosa, an analyst at the Inter-American Development Bank who focuses on Latin America, has evaluated the results of strategies pursued in several key countries to develop their respective energy resources. His work takes into account the rules each nation has established and gauges the various results over two decades of industry development.

Espinosa has identified the Latin American countries that have succeeded, and those that haven’t, using two basic measures of success — the industry’s growth and its ability to contribute to the development of the country’s economy. Peru and Colombia are among the most successful, while Venezuela, Ecuador, Argentina and Mexico lag far behind. Brazil was among the winners until a couple of years ago, but has since slipped.

So what makes the difference? Espinosa believes that much of the credit or blame is linked to the nature of regulations and the relative strength accorded to regulators. Where rules are designed to promote the industry’s development, it prospers, and when objectives become confused or contraditory, disaster ensues.

Offshore oil platform located in the Gulf of Mexico — Photo: Chad Teer

Brazil is a fine example: Its first wave of reforms in the 1990s sought to create a real energy market where Petrobras was the preeminent actor, operating from a favorable position but without overstepping its role. Initial legislation conceded no perks or privileges to Brazil’s state oil firm, which allowed various actors, both domestic and international, to become interested in participating in the industry and bidding for contracts the government was putting onto the market.

In recent years, however, the government changed its legislation and included contradictory criteria. Now investments are required to have a determined percentage of local content and Petrobras must be a partner in contracts. The result is that no relevant actor in the world today that has the technology and capital that Brazilians (and we Mexicans) need has sought to participate. Brazil is thus no longer on the successful list.

If the aim is to attract investment and technology, legislation must respond to market traits and prove competitive amid the multiple of states developing their oil and gas resources. Too often, Latin America’s focus seems inverted: We think the rest of the world is salivating at the prospect of exploiting our (potential) oil and gas resources, and we need only put up a Welcome sign. That might have worked a decade ago, but not now, given the discovery of oil reserves and the technological advances of the last 10 years.

In the new energy world, our main client will be largely self-sufficient. This market entails a competitive logic unprecedented in recent decades — it’s a buyers’ market, in other words.

As a prominent oil executive said, there are so many projects in the world today. What’s missing is the capital they require. The world’s great actors will evaluate their investment options based on potential returns and legal security. Currently, no serious firm would participate in a project that does not assure attractive returns and is not free of political intervention.

A Pemex gas station in Rancho Salvador Sol Torres — Photo: Coolcaesar/GNUFDL

This calculation applies not just to Mexico but to all investment options in their portfolio. The Left's proposals to subject energy reforms to a referendum constitute an additional, and enormous, cost (and risk).

Without a properly competitive framework that attracts relevant players in the world, we are wasting our time. Clearly the big players will propose many conditions before legislation creates a new regime, independent of the conditions they could actually live with, and which are unknown beforehand. The investors the government wants to attract will make their assessments after relevant legislation is passed, and if that legislation is insufficient, it could prove disastrous.

I can say from what I have learned that beyond the merely technical, the crucial difference lies in three factors: the regulator’s (real) independence as the higher authority; the absence of absurd requirements like partnership with Pemex or obligatory contracts with the oil-sector union; and finally, developing an energy market that allows protagonists to act with market criteria. So, what’s at stake? Everything — perhaps even the current presidency.

*Luis Rubio is President of Mexico’s CIDAC (Centro de Investigación para el Desarrollo), an independent body engaged in political and economic research.

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Protests against gasoline price hikes in Lebanon

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Wai!*

Welcome to Thursday, where leaked documents show how some countries are lobbying to change a key report on climate change, Moscow announces new full lockdown and the world's first robot artist is arrested over spying allegations. Meanwhile, German daily Die Welt looks at the rapprochement between two leaders currently at odds with Europe: UK's BoJo and Turkey's Erdogan.

[*Bodo - India, Nepal and Bengal]


🌎  7 THINGS TO KNOW RIGHT NOW

• Documents reveal countries lobbying against climate action: Leaked documents have revealed that some of the world's biggest fossil fuel and meat producing countries, including Australia, Japan and Saudi Arabia, are trying to water down a UN scientific report on climate change and pushing back on its recommendations for action, less than one month before the COP26 climate summit.

• COVID update: The city of Moscow plans to reintroduce lockdown measures next week, closing nearly all shops, bars and restaurants, after Russian President Vladimir Putin announced a nationwide seven-day workplace shutdown from Oct. 30 to combat the country's record surge in coronavirus cases and deaths. Meanwhile, India has crossed the 1 billion vaccinations milestone.

• India and Nepal floods death toll passes 180: Devastating floods in Nepal and the two Indian states of Uttarakhand and Kerala have killed at least 180 people, following record-breaking rainfall.

• Barbados elects first ever president: Governor general Dame Sandra Mason has been elected as Barbados' first president as the Caribbean island prepares to become a republic after voting to remove Queen Elizabeth II as head of state.

• Trump to launch social media platform: After being banned from several social media platforms including Facebook and Twitter, former U.S. President Donald Trump announced he would launch his own app called TRUTH Social in a bid "to fight back against Big Tech." The app is scheduled for release early next year.

• Human remains found in hunt for Gabby Petito's fiance: Suspected human remains and items belonging to Brian Laundrie were found in a Florida park, more than one month after his disappearance. Laundrie was a person of interest in the murder of his fiancee Gabby Petito, who was found dead by strangulation last month.

• Artist robot detained in Egypt over spying fear: Ai-Da, the world's ultra-realistic robot artist, was detained for 10 days by authorities in Egypt where it was due to present its latest art works, over fears the robot was part of an espionage plot. Ai-Da was eventually cleared through customs, hours before the exhibition was due to start.

🗞️  FRONT PAGE

"Nine crimes and a tragedy," titles Brazilian daily Extra, after a report from Brazil's Senate concluded that President Jair Bolsonaro and his government had failed to act quickly to stop the deadly coronavirus pandemic, accusing them of crimes against humanity.


📰  STORY OF THE DAY

Erdogan and Boris Johnson: A new global power duo?

As Turkey fears the EU closing ranks over defense, Turkish President Erdogan is looking to Boris Johnson as a post-Brexit ally, especially as Angela Merkel steps aside. This could undermine the deal where Ankara limits refugee entry into Europe, and other dossiers too, write Carolina Drüten and Gregor Schwung in German daily Die Welt.

🇹🇷🇬🇧 According to the Elysée Palace, the French presidency "can't understand" why Turkey would overreact, since the defense pact that France recently signed in Paris with Greece is not aimed at Ankara. Although Paris denies this, it is difficult to see the agreement as anything other than a message, perhaps even a provocation, targeted at Turkey. The country has long felt left out in the cold, at odds with the European Union over a number of issues. Yet now President Recep Tayyip Erdogan is setting his sights on another country, which also wants to become more independent from Europe: the UK.

⚠️ Outgoing German Chancellor Angela Merkel always argued for closer collaboration with Turkey. She never supported French President Emmanuel Macron's ideas about greater strategic autonomy for countries within the EU. But now that she's leaving office, Macron is keen to make the most of the power vacuum Merkel will leave behind. The prospect of France's growing influence is "not especially good news for Turkey," says Ian Lesser, vice president of the think tank German Marshall Fund.

🤝 At the UN summit in September, Erdogan had a meeting with British Prime Minister Boris Johnson at the recently opened Turkish House in New York. Kalin says it was a "very good meeting" and that the two countries are "closely allied strategic partners." He says they plan to work together more closely on trade, but with a particular focus on defense. The groundwork for collaboration was already in place. Britain consistently supported Turkey's ambition to join the EU, and gave an ultimate proof of friendship after the failed coup in 2016.


➡️ Read more on Worldcrunch.com

📣 VERBATIM

"He has fought tirelessly against the corruption of Vladimir Putin's regime. This cost him his liberty and nearly his life."

— David Sassoli, president of the European Parliament, wrote on Twitter, following the announcement that imprisoned Russian opposition leader Alexei Navalny was awarded the 2021 Sakharov Prize for Freedom of Thought, the European Union's highest tribute to human rights defenders. Navalny, who survived a poisoning that he blames on the Kremlin, is praised for his "immense personal bravery" in fighting Putin's regime. The European Parliament called for his immediate release from jail, as Russian authorities opened a new criminal case against the activist that could see him stay in jail for another decade.

💬  LEXICON

魷魚的勝利

Chinese video platform Youku is under fire after announcing it is launching a new variety show called in Mandarin Squid's Victory (Yóuyú de shènglì) on social media, through a poster that also bears striking similarities with the visual identity of Netflix's current South Korean hit series Squid Game. Youku apologized by saying it was just a "draft" poster.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Anyone want to guess Trump's first post on his upcoming social media platform...? Let us know how the news look in your corner of the world — drop us a note at info@worldcrunch.com!

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