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Mexico election report: What private
investors need to know
By Greg Hill and Carlos Ramos
Since the dawn of his campaign, Andrés Manuel López Obrador’s (a.k.a AMLO) — Mexico’s now President-elect — has consistently sent mixed messages to the energy industry regarding private investment in the Mexican energy sector ushered in by the 2013 reforms. Recently, Obrador called the denationalization of the oil sector “a rotund failure” only to meet with investors days later to discuss ways to better facilitate private sector investment.
Despite these mixed messages, investors would do well to remain prudent and focus on governmental actions, not words. After all, AMLO’s victory didn’t change the country’s desire to more aggressively exploit existing oil and natural gas reserves, modernize pipelines, and expand power generation. Doing so will require significant private investment.
What’s more, the fact that Mexico has already entered into several free trade agreements providing vast investment protections (including a recently re-negotiated NAFTA) will make it difficult for AMLO’s administration to reverse the 2013 reforms or unwind existing investments without triggering important foreign investment protection commitments. Thus projects are generally expected to go forward.
That being said, the incoming administration will bring new challenges to the sector. As projects move forward, there will likely be heightened scrutiny, for instance, when it comes to various compliance matters and the protection of local communities. While the government will necessarily increase investment into oil exploration and production to cover real needs, it remains to be seen whether investors will be able to continue to come in as partners of, or service providers for, the government.
Given these challenges, investors considering new opportunities in Mexico should proceed with caution. They should not, however, sit on their hands. Investors can prepare by laying the foundation in Mexico: thinking through the various legal and practical issues, mapping risks, and performing specific diligence of potential projects.
The aim is that investors be able to act swiftly when opportunities come. The energy sector in Mexico is evolving in real time, and new projects will be seized on a first come, first served basis.
