Mexico City — On the heels of his historic election as Mexico's next president, AndresManuel Lopez Obrador acted to reassure worried investors, naming twoeconomic moderates to lead his economic transition team.
Not registered?
Receive daily email alerts, subscriber notes & personalize your experience.
Register NowWhile the move was generally seen as positive, analysts still say it istoo early to know how he will handle the country's energy reform as helaunches a review of existing contracts.
The uncertainty regarding the role of private participation in Mexico'senergy sector has increased as Lopez Obrador, known as AMLO, is projectedto gain majority rule in both chambers of the legislature, although hehas come up short of controlling a two-thirds majority, which would beneeded to initiate constitutional changes.
As of late Monday, local media projected AMLO's coalition will win 70senatorial seats our of 128, and 310 congressional seats out of 500available.
During his victory speech late Sunday, AMLO named business leader AlfonsoRomo and technocrat Carlos Manuel Urzua to handle economic matters.
The week of the election, Romo tried to reassure investors by saying thatAMLO recognizes the need for private investment in Mexico's energysector.
Also, Romo said AMLO would allow future auction rounds next year ifcorruption doesn't taint contracts awarded to date under the energyreform.
However, AMLO's energy policy isn't clear at the moment, Gonzalo Monroy,managing director of Mexico City-based energy consulting firm GMEC, toldS&P Global Platts on Monday.
"Analysts right now are reading tea leaves to figure out what is going tohappen in the coming months," Monroy said.
Private investment in the energy sector under AMLO's administration is amajor question right now,.Valeria Moy, a fellow with the AtlanticCouncil's Adrienne Arsht Latin America Center, said at a conference onMonday.
"(AMLO) isn't a fan of the energy reform, but his team has mentioned thatthey will keep it as long as it is good for Mexico," Moy said.
However, AMLO and different advisors have contradicted themselves throughthe campaign, increasing uncertainty, she added.
AMLO has pledged to make a self-sufficient Mexico in several economicsectors including electricity generation and motor fuel production.
WAITING FOR THE DETAILS
"The devil is in the details, and as a president, we expect (AMLO) todefine the details of his energy policy," Monroy said.
For example, AMLO's team hasn't disclosed what the review criteria isgoing to be to examine signed contracts for corruption, he said.
Another indicator of Mexico's energy future will be AMLO's appointmentsto direct Mexico's state oil company Pemex and power utility CFE, Moysaid.
"If he appoints people who have denounced the energy reform, it will be aclear indication of what is to come," Moy said.
Another concern for the long-term future of the reform is the designationof future commissioners for energy regulatory bodies, which areindependent entities, Monroy said.
Commissioners are nominated by the president and require a simplemajority vote from the legislature.
David Goldwyn, president of Goldwyn Global Strategies, told Platts onMonday he expects the overall changes to the energy reform to beincremental, but that there could be altered terms for local content andthe amount of government take or royalties in the upstream.
"On the oil and gas side of the equation, the reforms are locked in,which means the kinds of contracts, the forms of regulatory supervisionand the transparency in the disposition of funds will be unchanged,"Goldwyn said.
However, many aspects of the energy reforms are permissive, in that theygive the government the right -- but not obligation -- to offer licensecontracts, competitive terms and to put acreage out for lease, he said.
During the first year of the administration it is probable there will bea bit of a pause while they evaluate whether or how much acreage theywant to put out for sale, Goldwyn said.
"I think that will mean for most of his next term, that he will still bereliant on US gas to power the economy, and I think that investment inrefineries is unlikely because Pemex remains short of cash."
As part of AMLO's agenda is to decrease domestic energy prices. DuncanWood, director of the Wilson Center's Mexico Institute, said on aconference call on Monday that the electricity reform has allowed powerprices to be at record lows, in line with goals of keeping costscompetitive for businesses as well as consumers.
"My prediction is there will not be a major shakeup of the electricitysector. We're unlikely to see as many ambitious bidding rounds forgeneration capacity, but that's not such a bad thing. Mexico has alreadycommitted to building huge amounts over the last three years," Wood said. --Daniel Rodriguez, with Maya Weber in Washington, newsdesk@spglobal.com
--Edited by Gary Gentile, newsdesk@spglobal.com