Economic Research
Mexico
The Senate fully approved energy reform
secondary laws

The Senate approved the secondary laws of the energy reform

The main features of the secondary laws approved yesterday are:
(1) The percentage of profits to be paid to the original land owners
for the “temporary occupancy” of the land for exploration and
production of hydrocarbons
(2) The Energy Regulatory Commission (CRE) will have the power to
regulate electricity prices
(3) The establishment of a new legal regime for PEMEX and CFE, in
which these are defined as “Productive Firms of the Mexican State”
(4) Amendments to the Organic Law of the Federal Public
Administration which establishes that regulations for contracts,
permits, licenses, purchases, leases, and services will be subject to
the Federal Anti-Corruption Law

The energy committee in the Lower House has already approved the
first set of laws

As we have mentioned earlier, we believe that the energy reform will
increase Mexico's long-run potential GDP by 1%-pt, and will boost
investment in this sector between US$10-12bn in 2016, and up to
US$50bn by 2020
July 22, 2014
www.banorte.com
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@analisis_fundam
Gabriel Casillas
Chief Economist and Head of Research
gabriel.casillas@banorte.com
Delia Paredes
Executive Director of Economic Analysis
delia.paredes@banorte.com
Alejandro Cervantes
Senior Economist, Mexico
alejandro.cervantes@banorte.com
Saúl Torres
Analyst, Mexico
saul.torres@banorte.com
Yesterday, the Senate fully approved the secondary laws of the energy
reform. From the four set of amendments derived from the energy reform, the
first was approved with 90 votes in favor and 28 against it. Similarly, the second
set of laws was approved with 92 votes in favor (27 against), while the third was
approved with 89 votes in favor and 27 against it. Finally, the fourth and final
set of laws was approved with 85 votes in favor and 26 votes against it.
What does each set of laws encompass? Within the amendments made in the
past four days, the Senate made several modifications to the set of laws
approved in the joint committees (please refer to our Research note: Senate joint
committees approved the secondary laws derived from energy reform [here]).
Below are the main features regarding each set:
(1) The main modifications regarding the first set of laws were the approval of
the share of profits oil companies would have to pay to the original land
owners for the exploration and production of hydrocarbons (between 0.5%
and 2% of the profits generated by these projects).
Document for distribution among
public
1
(2) The second set of amendments contains the proposals to: i. Eliminate the
concept of “expropriation of land” for the development of the electric
industry; ii. the rejection of the President's power to design strategies to
manage subsidies; iii. the Energy Regulatory Commission (CRE) will have
the power to regulate electricity prices; but iv. the President will have the
power to set final electricity prices for special vulnerable groups.
(3) The third set of amendments include: i. The approval of a new legal regime
for PEMEX and CFE, in which these are defined as “Productive Firms of
the Mexican State”; ii. Pemex and its subsidiaries will enjoy financial
independence and will be liable only to the financial statement and personal
services ceilings approved by the Congress; iii. CFE and PEMEX will be
subject to the Securities Exchange Act thereby ensuring their adequate
performance and accountability; iv. the creation of a public database system
which will contain information regarding PEMEX and CFE suppliers and
the contracts celebrated by these entities concluded in the last five years;
and v. an amendment to the new regime of PEMEX and CFE that keeps the
current rights of its active and pensioned workers.
(4) The last set encompasses the amendments to the Organic Law of the Federal
Public Administration which establishes that regulations for contracts,
permits, licenses, purchases, leases, and services will be held responsible to
the Anti-Corruption Federal Law. The amendment also created the National
Security Agency for Industrial as well as the Environmental Protection of
the Hydrocarbon Sector.
What comes next? Since last Friday, the set of laws that had already been
approved by the Senate were sent to the Lower House for discussion and
approval. In fact, the Energy Committee in the Lower House has already
approved the first amendment. Once such committee ends the discussion of the
secondary laws, these will be voted in a plenary session of the Lower House.
Once approved by the Lower House, the set of laws shall be sent to the
President for publication and implementation.
We believe that the energy reform will increase Mexico's long-run potential
GDP growth rate by 1%-pt. As we have mentioned in previous notes, if the
secondary laws regarding the energy reform are approved in the next few days
by the Lower House, we believe that this reform could add up 3 to 5%-pts to
GDP in a three-year timespan, beginning on 2016, while its permanent effects
will increase Mexico's long-run potential GDP by 1%-pt. Even though we
believe local markets have already priced-in part of the approval of the
secondary laws package, market reaction should be favorable once the Lower
House approval is achieved, particularly in the FX market.
2
Capital spending in the energy sector
US$bn; % of GDP
90
80
70
60
50
40
30
20
10
0
Private Sector
Pemex
4.8
6
5
4.4
Pemex+PI (% GDP)
3.8
4
50
3.3
40
2.9
29
3
2.7
20
2.2
2.2
12
2.0
2.1
7 2.2
2
2.0
2.0
1.9
1.9 2 2.1 3 2.0
1.8
1
31
31
31
1
30
30
29
25
25
23
Pemex (% GDP)
0
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Marcos y Asociados
Disclaimer
The information contained in this document is illustrative and informative so it should not be considered as an advice and/or
recommendation of any kind. BANORTE is not part of any party or political trend.
3
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