Mexico: Banks line up for energy push

The positive reaction to the announcement in December, of the constitutional amendment to pave the way for ground-breaking energy reforms has generated considerable excitement among investors, bankers and energy companies in Mexico.

The reforms open up the oil and gas and electricity industries to private-sector companies, and reform the monopolistic role of state-owned oil company Pemex. The breadth of the reforms surprised many, specifically the inclusion of the ability to grant licences, which opens the possibility that oil companies should be able to book oil and gas assets, making large exploration and production projects more feasible for private companies. Profit- and production-sharing contracts will also increase the incentives on offer to private-sector companies in upstream, midstream and downstream projects.

Estaban Polidura, energy analyst at Deutsche Bank in Mexico City, says the scope of the reform has led the bank to raise its projected increase on Mexican GDP growth in the mid-term to 150 basis points annually. “This is our best guess today with the very limited information we have,” says Polidura, who notes that secondary laws will provide much-needed clarity on how CFE, Pemex and the private sector will interact. “But I would say this is probably a conservative scenario and if things work well we might even have some slightly higher figures than we are forecasting.”

However, although there might be an upside on GDP growth, the equity market seems to have already priced in the energy reforms despite there being so much yet to be determined by the secondary laws. Pemex’s CEO, Emilio Lazoya, may be predicting the first drops of oil flowing under the new regime by the end of 2014 but most think the end of 2015 or 2016 is more realistic.

For the full story visit Euromoney Magazine

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