Mexico Could See Big Changes in Energy Reform
Mexico’s Congress passed a comprehensive energy reform bill on December 12, paving the way for a major opening of the country's energy sector to private investment--the first in 75 years. The legislation will now have to be approved by the state legislatures and then secondary legislation must be passed in 2014 in order to implement the constitutional changes involved in the reform.
Once those are implemented, the oil and gas sector will open to private investment via profit-sharing agreements, production-sharing agreements, and licenses. The extra government revenue expected from these contracts will flow into a sovereign oil fund, which will be managed by the country’s central bank.
According to Mexico’s government estimates, increased oil and gas production could raise annual GDP growth by a full percentage point. In our view, increased investment in energy will eventually lower manufacturing costs in Mexico. Moreover, the Mexican government will be able to free up some resources that could be redirected to tackle the country’s education and infrastructure shortcomings.