January 2019 – @alvaroriosroca – On December 1st, 2018, Andrés Manuel López Obrador (AMLO) took office in Mexico for a six-year term without eligibility for a subsequent term. This January 1st, 2019, Jair Messias Bolsonaro (JMB) will take office as well in Brazil for four years and with the possibility of only one re-election. That is the democratic rule and it is duly respected in both countries.
The two countries have deep social inequalities, a high level of poverty and high corruption, mainly south of Mexico and northwest of Brazil. Despite having raw materials and some manufacturing industry, they have not been able to come close to being considered developed countries due to very low production of high quality goods and services.
Going into the topic, in this upcoming 2019, these 2 countries will start a new administration in a deep counter-route in terms of energy policy. The Latin American energetic pendulum is confirmed. In Mexico, after a great period of statism (75 years) where Pemex and the CFE led almost all investments in hydrocarbons and electric power, in 2013 an Energy Reform was approved and launched.
This reform is due to the technological and financial weakening of Pemex and CFE, the fall in production of hydrocarbons and electricity generation, extreme corruption and other factors. The reform allows opening to investment of the private sector and that the two parastatals work as privileged public companies, but entering into competition with the new actors. Independent regulators are installed, and so on.
In 6 years more than a hundred contracts are delivered in areas of oil interest to international companies and permits are granted for Pemex to be associated with them. In the electric sector, the generation and construction of numerous gas pipelines are opening to replace fuel oil and much more.
However, now the AMLO administration wants to stop the reform. The tenders of oil areas will be stopped and state resources are being allocated so that Pemex can strengthen and exploit risk and build refineries and much more (where the resources will come from is the fundamental question). It is a turn to a statist model only six years later.
In Brazil, almost two decades ago, an Energy Reform was made, something similar to Mexico. Petrobras and Electrobras were granted freedom to compete and have a solid corporate governance, invest and internationalize. Regulatory authorities were created for this purpose. The results were surprising mainly with the offshore discoveries (Presal).
After 2002, former presidents Lula and Roussef restrained private investments, stopped hydrocarbon area tenders, weakened regulatory authorities, granted de
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Spanish to English, which is part of a single indivisible set.
facto monopolies to Petrobras and Electrobas, made them subsidiaries and set up an unimaginable corruption scheme. A statist outline that led Petrobras and Electrobras to the debacle. Result, we had to resort to privatizing business units to get out of high debt, dismantle subsidies, restore independence to regulators, retake bids in areas and much more. That’s what the country of samba has been going.
Everything indicates that JMB will toughen these measures and the privatizations will advance even more. Petrobras and Electrobras will be reduced, they will supposedly have a more corporate government (less politicization of the companies) and the regulators will continue to be strengthened to regulate the activity and generate competition. This translates to lesser presence of the State in the energy activity.
Time will tell which of the two models will bring more investment, prosperity, better days and less corruption in energy matters. Personally I think the statist model has been proven demonstrably inadequate. The two incoming presidents have proposed to fight against corruption head-on. We are going to believe them for the benefit of the two countries and the entire region but I assure you, no model will work with the corruption that has befallen us for decades. Auspicious 2019 to our readers.
*Former Hydrocarbons Minister of Bolivia and Current Managing Partner of Gas Energy Latin America.