A Brief Respite

  • Date : 10/08/2015
A Brief Respite

After several challenging months, Mexico finally has a bit of positive news. Last week marked the second bidding phase in Round 1 of the country’s energy reform, and unlike the first stage, this auction was widely deemed a success.

The government awarded three of the five shallow-water production fields in a transparent and efficient process. Further, the roster of companies included some of the world’s energy heavyweights, with ENI (who was awarded a contract) competing against China’s CNOOC, Russia’s Lukoil, and Norway’s Statoil, among others.

One reason behind this success was the ongoing dialogue between the Mexican government and investors. In the lead-up, officials tweaked contract terms, revealed the minimum bid requirements ahead of time, and even raised the “adjustment mechanism” for the government’s revenue share (meaning that if companies strike it big, they can keep more of their profits). These changes boosted the sector’s attractiveness—helping to counter competition from Brazil’s upcoming energy auction and a more risk averse global investment climate. Up next will be bidding for onshore basins in December and then the long-awaited deep-water phase in the first half of 2016.

I recently spoke with the World Politics Review on Mexico’s energy sector and low oil prices more broadly. We touched on Mexico and Pemex’s tighter budgets, as energy revenues plummeted some 36 percent year on year for the first six months of 2015. And we also covered how the government is decreasing spending to cope—announcing another $5.8 billion in cuts last month—instead of raising taxes or taking on more debt. This new energy environment has also put pressure on the country’s reform process, requiring more competitive contract terms and temporarily shelving the bidding rounds for unconventional resources.

Still grabbing headlines are Mexico’s perennial challenges with corruption and insecurity. Earlier this year, I wrote that 2015 needed to be the year that Mexico got serious about strengthening its rule of law. Yet with the one-year anniversary for the Ayotzinapa massacre on September 26th, it’s disappointing how little has changed. Not only do we still lack evidence regarding what actually happened to the forty-three disappeared students, but the government’s official story is now under fire. This tragedy and similar events are a stain on Mexico’s record that won’t be going away anytime soon.

This past week, however, we saw what I hope to be the beginning of a shift away from the status quo. In a move that would have been unlikely just a few months ago, Mexico extradited thirteen cartel members to the United States. Among them was “La Barbie,” the infamous cartel leader known for his ruthless cruelty and considered one of the Mexican government’s biggest catches. The extraditions come after Joaquin “El Chapo” Guzman, the head of the Sinaloa Cartel, escaped from a Mexican high security prison this past summer—showing a government that may be, albeit slowly, changing course.

Lastly, there have been a few positive economic stories for North America over the past week. On Monday, negotiators concluded the Trans-Pacific Partnership (TPP) deal, of which the United States, Canada, and Mexico are all participants. The deal now has to navigate the U.S. congressional minefield, but its completion marks another step toward greater regional cooperation and integration. Meanwhile, the World Economic Forum also released its 2015-2016 Global Competitiveness Report, with Mexico jumping four spots to reach the 57th position out of 140 countries, due largely to advancements in its financial markets and business sophistication. Yet not everyone in Latin America did so well, with Brazil falling eighteen spots this year to the seventy-fifth position.

I hope you’ll stay connected and in touch with me on LinkedIn, Facebook and Twitter for more news from Mexico.

And, if I can assist you or your team here at White & Case in Mexico City or through Vianovo Ventures, simply call.

Sincerely,

Antonio Garza

  • You’ve heard me say that the team here at White & Case Mexico City  is among the very best in the business. And, senior partner Iker Arriola has long been recognized as one of Mexico’s leading lawyers. You can find out more about Iker and his areas of expertise here.
  • The Thomson Reuters Foundation recently recognized White & Case for its pro bono work with NGOs and social enterprises around the globe. Click here to view a video on this prestigious international accolade.
  • I’m looking forward to sitting down with The Wall Street Journal’s Dudley Althaus to talk Mexico, our Texas border and politics during the Texas Tribune Festival on Sat., Oct. 17. For the full schedule and ticket information, visit the TribFest site.
  • Last week, the Wilson Center released “Competitive Border Communities: Mapping and Developing U.S.-Mexico Transborder Industries,” an initiative that hopes to encourage greater collaboration and coordination for investment and trade across the border region. You can watch a recap of the launch and learn more about the project here.
  • The University of Texas at Austin’s Teresa Lozano Long Institute of Latin American Studies (LLILAS) is holding a lecture on Contemporary Mexico, “Mexico’s Political Labyrinth” on Oct. 9. Learn more about this event and the LLILAS center online.

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