Mexico: a historic moment with meaningful decisions
First published in Energy & Commerce
Miguel de Unamuno, writer, poet, novelist and principal of the University of Salamanca, Spain, was a distinguished and respected thinker around the 30’s of the 20th Century, for that reason, his thoughts and messages are important and still valid today, recalling essential topics and making us think. Going through this moment in Mexico, we remember some of Don Miguel’s thoughts, who said: “Historic moments lived by countries and societies were marked by at least 3 critical aspects: transcendent topics, the need for decisions, and leaders with authority.” If we take on account this definition from Unamuno, then we confirm that Mexico is going through a historic moment.
Indisputable victory achieved by the Elected President of Mexico Andrés Manuel López Obrador, is a historic moment for some reasons: the overwhelming number of votes he achieved backing up his anti-system speech, in opportunities close to populism; and his extraordinary perseverance, a stubbornness to insist 3 times, and waiting with sly patience along 12 years for his moment, his opportunity, harnessing at a maximum level the mistakes of his opponents. He did it like those well cohesive football teams we recently saw in the World Cup in Russia, those teams harnessing the mistakes of their adversaries to score goals and continue winning matches, going forward to the final game to win with an identical strategy. The elected President made some promises during his campaign, some of them hard to accomplish, but he is obliged to meet them because he was backed up by a population tired of being foolish, tired of the corruption, and frightened by the increase of the insecurity and violence. From the 50 priority actions that the new government will encourage, based on the expectation created, three topics must be reviewed: public officials’ salary, considering that no one can earn more than the President of Mexico; moving some Ministries to other cities; and to review the energy policy, taking on account how it has changed the image of Mexico in the last years.
The first topic: a measure that will directly affect more than 50,000 high-level officials working for the federal government. Experts comment that more than $40 billion pesos can be saved. Likewise, “trust” personnel will be reduced by 70%, and all family members will be fired. There will only be net salaries and any bonuses will be canceled. We believed that reducing the number of officials is an important measure, and it could be more effective than decreasing salaries, due public paperwork will be reduced, benefiting productivity. However, this decision will not match with his employment promises, on the contrary, it could create a negative reaction to his image. How is he going to put salary adjustment into effect? We will see, as well as the impact and the reactions of the population. The first topic: a measure that will directly affect more than 50,000 high-level officials working for the federal government. Experts comment that more than $40 billion pesos can be saved. Likewise, “trust” personnel will be reduced by 70%, and all family members will be fired. There will only be net salaries and any bonuses will be canceled. We believed that reducing the number of officials is an important measure, and it could be more effective than decreasing salaries, due public paperwork will be reduced, benefiting productivity. However, this decision will not match with his employment promises, on the contrary, it could create a negative reaction to his image. How is he going to put salary adjustment into effect? We will see, as well as the impact and the reactions of the population.
For the second topic, moving some Ministries, there are historical references, the most recent one in 1986. Even though it is needed, it must be carefully reviewed. Undoubtedly, there are procedures that can perfectly be located in other states, encouraging a better management development and control; not necessarily all procedures. The Energy Ministry is said it will be moved to Villahermosa, Tabasco; and Pemex to Carmen City, Campeche. We are sure that common sense will prevail over emotional and electoral decisions, and with an adequate advisory, there are processes that in both cases can be correctly executed. Many companies have representative offices in Tabasco and Campeche, and undoubtedly, they will be benefited from having close offices related to their operation, they will reduce approval time, and travel and hotel costs.
The third sensitive topic is meaningful to Mexico, it has to do with the Energy Reform and his proposal to review all contracts assigned in the 3 rounds, which included 14 bidding processes, as in the farmouts of Pemex and turning exploration and production integral contracts into license or shared production ones.
At this point, it is very important to watch forms and communications, due in the international scene there are doubts and uncertainties about how things can end. The decision of the CNH to delay biddings 3.2 and 3.3, and the farmouts of Pemex until February 2019 sent an alert message to investors and international companies.
No one could be against strengthening Pemex and giving it needed execution capabilities like financial and human resources. The State-owned Productive Company must continue as the most important firm in the sector, and its tax situation must be reviewed compared to other oil companies already operating in Mexico. Maybe it is the moment to change its tax paradigm and make it variable, tied to the characteristics of every field and its life cycle; and to the reality of the market which will purchase the produced oils.
So, to paraphrase Miguel de Unamuno, we live “a historic moment” and the elected President and his team are the leaders, the main characters, and they have a great opportunity to change, to improve what has been done until now. What must not happen is to go back to the previous model, due it is history, but one that served to set the bases for change, with one specific intention: achieving energy security.
Luis Vielma, is CBM Ingeniería Exploración y Producción President and CEO, a well-known Mexican engineering services company. Member of the International Society of Petroleum Engineers (SPE) and México Petroleum Engineering Society. Mexican Association of Service Companies (AMESPAC) International Relations VP. Frequent collaborator in three prestigious Mexican energy news publications, as specialized writer for the hydrocarbons sector. Speaker in national and international events of the energy sector. Author of three books, the last one “Chapopote”, a historical fiction of Mexican oil, which is considered the most original documented story of the origins of the oil industry in Mexico.