Mexico’s Energy Reforms: A Shaky Solution

Patrick Burchat, Research Associate at the Council on Hemispheric Affairs

On July 23 the voices of the marginalized poor rang through the streets of Mexico City. The focus of their anger was the Mexican government’s ongoing attempts to reform the country’s energy sector. Fifteen leading peasant and indigenous organizations, some 70,000 protestors, had decided to give public voice to their frequently ignored concerns over the proposed privatization of Mexico’s state-run energy industry.[1] It was an impressive march, the mass of people winding through the streets of the capital, beginning at the Angel of Independence monument, and ending outside the Government Secretariat. At the conclusion of the march peasant and indigenous leaders met with government officials, pressing their arguments.[2]

The reform legislation was first proposed by President Peña Nieto in August 2013 and passed the legislature in December that year. The law was subsequently adopted by a majority of 31 states.[3] Still, the changes are not yet in force, and debate continues over the 21 laws that would govern the transition towards privatization. The most objectionable part of these laws, and the focal point of the protests, is the provision which allows for the government’s forcible seizure of land for oil exploitation, regardless of a community’s concerns or protests.[4]

The government is still trying to piece together some coherent process under which it will privatize Petróleos Mexicanos (PEMEX) and the Comisión Federal de Electricidad (CFE), but how this delicate business will actually go forward is anyone’s guess. Given Mexico’s disastrous prior experiences and truly breathtaking levels of corruption in the nation’s previous rounds of privatizations, one might have hoped that they would take somewhat more care this time.[5] Much in Mexico, not just the energy sector, is in need of reform.

Why Reform Energy?

The government’s fervor for these changes comes in response to PEMEX’s declining oil production and its inability to explore for new reserves over the last several years. In order to expedite the passage of these 21 laws, the governing Partido Revolucionario Institucional (PRI) has now entered into a coalition with the right-wing Partido Acción Nacional (PAN). PAN has long championed free market measures such as this.[6] In the hopes of stimulating production in the energy sector, Peña Nieto had previously removed a constitutional ban on foreign investment in the energy industry, laying the groundwork for future privatization.[7] He promises these reforms will diversify government revenue sources, increase the development capability of Mexico’s energy sector, and assure affordable energy for Mexicans, all the while preserving legitimate landholders’ and indigenous rights.

This sharp rightward turn has brought political opposition to the reforms, spearheaded by the left-wing Partido de la Revolución Democrática (PRD). The PRD’s approach has been to seek to bring the general public into the debate. In May, the PRD attempted to transfer the decision-making process from the government directly to the people of Mexico, calling for a national referendum on the issue. However, President Peña Nieto’s ruling party, the PRI, has argued that a referendum in this instance would be in violation of Mexico’s constitution because it would involve fiscal issues which are not supposed to be subject to a referendum.[8] The debate over this continues in the legislature, but ultimately, it will fall to the Supreme Court to rule on the matter. It appears likely that the high court will deny the PRD’s appeal for a referendum because PEMEX does in fact provide one third of the federal government revenue.[9]

For the PRI a key selling point for the privatization is the promise that this change will benefit both private investors and the Mexican people. Still, it is hard not to conclude that the former is going to gain the most from this change. The parceling out of PEMEX and CFE will be overseen by two federal agencies, the Secretaría de Energía (SENER) and the Secretaría de Hacienda y Crédito Público, as the government sells off the national energy industries to private enterprises, and foreign investors are already lining up to grab the rights to tap into this veritable windfall.[10] Most notably, companies in the United States and Canada are preparing to compete over investment opportunities and contracts to drill and develop Mexican oil reserves, which could become some of the world’s most productive.[11] Peña Nieto has offered repeated assurances that the projected profits from these reforms will go straight into social programs such as health care and education, but Mexicans are skeptical of the eventual outcome.[12]

The Problems with Change

There are questions about the government’s credibility in handling the privatization in a transparent and democratic manner. A poll by Parametría, a leading Mexican polling firm, showed that 50 percent of Mexicans do not believe that the reforms will lower energy prices.[13] Part of the problem is that the Mexican government has earned a reputation for corruption. A list released by Forbes in 2013 named the 10 most corrupt Mexicans, all of whom were in, or had connections to, the government.[14] One of these individuals, Carlos Romero Deschamps, the union leader for PEMEX workers and a PRI Senator, was investigated for money laundering back in 2001, but then exonerated despite considerable evidence to the contrary. It is a pattern well established in Mexico: those with strong government ties usually enjoy happy outcomes in the Mexican criminal justice system[15] So although it remains unclear as to whether these reforms will benefit the average Mexican, it seems fairly certain that they will benefit the Mexican oligarchy, a well-connected, but underdeserving and too often criminal lot.

Meanwhile, peasant and indigenous populations have plenty to lose. Their lands, livelihoods, and way of life now stand at great risk. Protesters are particularly concerned about what happens to quality of that land when fracking or drilling occurs on it.[16] The peasant and indigenous organizations that led the protests have pledged that they will not cooperate with President Peña Nieto’s government on future land reform legislation unless provisions are placed in current energy reform laws that require the permission of communities before their land is explored for oil.[17] The government has offered to compensate those communities whose land is being developed based on a percentage of profit derived from the reserves.[18] While the government considers these provisions part of a fair deal, the fact that it doesn’t include these communities in the negotiations remains a core area of conflict and continuing dispute.

More Need to Change

The protests of July 23 are just a small chapter in the unfolding story of exclusion surrounding Peña Nieto’s energy reforms. A referendum would allow Mexicans a proper say in what happens to their energy sector. The decision over where and how to drill on indigenous and peasant land should be a discussion between the government and impacted communities. Stakeholders always deserve a say in what happens; the indigenous and peasant populations need to be acknowledged with a seat at the negotiating table. Like many indigenous peoples in other countries, such as Canada, there will most likely be communities that welcome the exploration of their oil reserves, and the subsequent compensation that comes with it.

It is important that natural resources like oil are used to benefit the greater good of the Mexican people. However, the current structure of reforms does not allow for the peasant and indigenous communities to have their say, while any profit from privatization could easily be funneled off into oligarchic coffers. If the Mexican government really wanted to pursue meaningful reform for the betterment of Mexico, then it would have to start with itself.

Please accept this article as a free contribution from COHA, but if re-posting, please afford authorial and institutional attribution. Exclusive rights can be negotiated. For additional news and analysis on Latin America, please go to: LatinNews.com and Rights Action. 

References

[1] Thousands of Peasants and Indians March Against Energy Reforms in Mexico,” Latin American Herald Tribune, July 23, 2014, http://www.laht.com/article.asp?ArticleId=2344966&CategoryId=14091

[2] Ibid.

[3] Gómez, Christian Jr., “Why Mexico’s Historic Oil Reform Matters,” US News, June 13, 2014, http://www.usnews.com/opinion/blogs/world-report/2014/06/13/mexicos-pemex-oil-energy-reform-is-just-the-beginning

[4] López Bárcenas, Francisco, “El despojo como actividad preferente,” La Journada, May 23, 2014, http://www.jornada.unam.mx/2014/05/16/index.php?section=politica&article=021a1pol&partner=rss

[5] Gómez, Christian Jr.

[6] McCarthy, Shawn, “Mexico Eyes Foreign Investment as Senate Approves Energy Reform Bills,” The Globe and Mail, July 23, 2014, http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/mexicos-senate-approves-energy-reform-bills/article19734200/

[7] Ibid.

[8] Ibid.

[9]Montes, Juan, “Mexican Leftists Warn Investors About Energy Sector,” Wall Street Journal, May 29, 2014, http://online.wsj.com/articles/mexicos-left-goes-to-washington-1401395473

[10] Negroponte, Diana Villiers Negroponte, “Mexico’s Secondary Law Provides a Path Forward for New Investments in the Hydrocarbons Sector,” The Brookings Institute, June 25 2014, http://www.brookings.edu/research/articles/2014/06/25-mexico-law-hydrocarbons-sector-negroponte

[11] The Globe and Mail.

[12] Gómez, Christian Jr.

[13] “Credibility Gap Hangs Over Mexico’s Energy Reform,” Latin News, July 25, 2014, http://www.latinnews.com/index.php?option=com_k2&view=item&id=61495&period=2014&archive=795458&Itemid=6&cat_id=795458:credibility-gap-hangs-over-mexicos-energy-reform

[14] “The 10 Most Corrupt Mexicans of 2013,” Forbes, December 16, 2013, http://www.forbes.com/sites/doliaestevez/2013/12/16/the-10-most-corrupt-mexicans-of-2013/

[15] Ibid.

[16] The Brookings Institute.

[17] Becerril Ballinas, Victor and Andrea, “ Antes que pozos petroleros, nuestras tierras serán campos de batalla, dicen campesinos,” La Journada, July 15, 2014, http://www.jornada.unam.mx/2014/07/15/index.php?section=politica&article=011n1pol&partner=rss

[18] Ibid.