Mexican plans to open up energy sector will have positive impact, says BlackRock’s Landers

Will Landers, portfolio manager of the BlackRock Latin American Investment Trust, comments on Mexico’s plans to open up the country’s energy sector

President Enrique Peña Nieto unveiled his administration’s much anticipated proposal for reforming Mexico’s energy sector which proposes profit sharing contracts (PSC’s) for private sector companies to participate in oil production and licenses for the private sector to build, own and operate refineries, petrochemical complexes, storage and distribution of oil products. His proposal, if approved, would bring regulation back to the period before the sector was nationalised in 1938.

While PSC’s do not go as far as granting full concessions to private operators, depending on how they are legislated, they should provide enough opportunity to attract significant private sector interest. In addition, national oil company Pemex will see its corporate governance strengthened in order to better partner with the private sector.

The electricity sector will also benefit from this proposal, with private companies being allowed to build and commercialized electricity with third parties (today they are limited to self- and co-generation). The government’s proposal for fiscal reform, needed to offset lower oil revenues to the government in the future, is expected to be announced in mid-September.

This proposal is historic, and should have a positive impact on Mexico’s ability to restore growth to its oil production figures, thus having a positive impact on economic activity once implemented.

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