AMLO Seeks to End Mexico’s Energy Dependence

(TeleSur, 11.Jul.2018) – Mexico’s national energy demand has become highly dependent on the United States.

Mexico’s next energy minister under president-elect Andres Manuel Lopez Obrador has said that the new administration’s energy agenda will be to increase domestic gas and diesel production and reduce dependency on foreign imports.

Rocio Nahle, appointed by AMLO for the energy ministry, said in an interview with a local paper that AMLO’s government will address the “energy imbalance” that makes it dependent on foreign imports to meet national demand.

AMLO has previously made pledges along this line during and after the election, saying that ending the massive fuel imports would be a priority for his first three years.

Mexico has imported an average of 590,000 barrels per day of gasoline and 232,000 per day of diesel, almost all of which comes from the United States. While the United States profits on gas sales to its neighbor, Mexico’s domestic production has decreased by half since the first year of outgoing President Enrique Peña Nieto’s term.

Today, gasoline output by Mexican state oil company Pemex meets less than a quarter of national demand, putting Mexico’s energy system in a situation of deep dependence on the United States.

During the election campaign, Lopez Obrador was sharply critical of the Pena Nieto’s policy to allow foreign and private oil companies to operate fields on their own for the first time in decades, ending Pemex’s monopoly.

Nahle said the next government will also begin construction of at least one new oil refinery, which she expects to be operating by the halfway point of Lopez Obrador’s six-year term.

AMLO also outlined several legislative priorities on Wednesday, particularly ending presidential legal immunity, and slashing the presidential salary.

The incoming administration would also put forward a law to remove obstacles to holding public consultations, as well as create a mechanism for recalling the president, he said.

Lopez Obrador said during the campaign he could hold public consultations on issues ranging from the government’s opening of the energy sector, the construction of Mexico City’s new airport, gay marriage and even his performance as president.

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Argentina Affirms Liberalization Of Fuels Market

(Institute of the Americas, Jeremy Martin, 11.Jul.2018) – Directly answering a question during an interview in a local media program about the issue of fuels market and pricing, newly-installed Energy Minister Javier Iguacel said: “There is no restriction. There is a free market.” The statement, on its face, does not appear to be overly dramatic, but it is quite important when considered against the backdrop of the last several weeks in Argentina.

In addition to the change at the top of the energy ministry, the government’s negotiations with the IMF, and a major transport strike at the end of June, the Macri administration had felt immense pressure to revise if not reverse several areas of its economic reform agenda that many economists and pundits argued were exacerbating the country’s inflation woes.

Nowhere was this more important than in the energy sector and the issues of tariff adjustments and the liberalization of the fuels market that went into effect at the end of 2017 but were thrown into some disarray when former Minister Aranguren signed a so-called stability pact with several fuel retailers to temporarily freeze fuel prices in an effort to alleviate inflationary pressure.

Indeed, the change of Aranguren for Iguacel was almost certainly a response to political and public relations pressure, but also in favor of new leadership that would again drive forward with Macri’s liberalization plans and objectives. This point was affirmed when, during the same interview, Minister Iguacel spoke very assuredly on how he intended to manage the fuel market challenge: “a policy of total interventionism, where two or three people set prices in a small room has generated many distortions.”

Minister Iguacel has also begun to reorganize key staff and officials in the Ministry of Energy, replacing in many instances holdovers from Aranguren’s tenure particularly those viewed as close to the former minister and part of some of the decisions in his final months with regards to market interventions.
The most notable change to-date has been Minister Iguacel’s bringing aboard Mario Dell’Acqua, the president of Aerolineas Argentinas, the state-run airline. Dell’Acqua will take over as the president of the government-run and ministry of energy-directed Integración Energética Argentina SA (IEASA). In simplistic terms, IEASA is the agglomeration of state energy enterprises that had been assembled under the previous Kirchner governments and nominally under the banner and state firm ENARSA. Dell’Acqua’s role at IEASA will be crucial in unwinding several state-owned energy assets, investments in transmission company Transener and managing bidding for new electric generation capacity, particularly for Buenos Aires.

Nor did Iguacel miss an opportunity to criticize the energy policies, manipulation and intervention in the sector by Macri’s predecessor forcefully noting, for what could be argued was the umpteenth time, that many of the market issues and challenges faced by Argentina were wrought by decisions, lack of decisions or worse, corruption, from the previous administrations.

But beyond those critiques, the more recent developments surrounding the lack of competition, or true liberalization of the market, has also reared its ugly head with regards to supply. In recent weeks certain retailers and fuel stations have been without supply and blame has been aimed at oil companies, the government’s policies, and the market. But it is precisely the latter, or insufficient development of the market that the Macri administration has long argued is the reason for any supply challenges for oil and gas and fuels in Argentina.

Meanwhile, the president of Argentina’s Confederation of Hydrocarbons Trade Entities, or CECHA, Carlos Gold took more direct aim and placed the supply and pricing challenges at the feet of local oil companies who, he argued, have distorted the market by placing a quota on fuel delivery and when the quota is exceeded there is a price differential.

Since taking over the reorganized Ministry of Energy last month, Minister Iguacel has begun to patiently assemble his vision for managing the energy ministry and by extension the energy policy outlook for Argentina under President Macri. The latest statements and very clear indications with regards to the debate swirling around the fuels market underscore that the Macri government remains committed to its energy reform agenda. Moreover, the pressure from inflation, demands and criticisms from friends and foes to perhaps slow down the reform process will not cause a reversal at this point.

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The Caracas Metro: Still Standing For Now

(Energy Analytics Institute, Piero Stewart, 11.Jul.2018) – The subway system serving the Venezuelan capital is on the verge of collapse due to lackluster maintenance amid ongoing economic, political and humanitarian crises.

Daily occurrences now include but are not limited to: armed robberies, shootings, petty thefts, fights, and of course power outages. It wasn’t always this way. We’re not pointing figures, but we beg to ask the question: who’s to blame?

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PDVSA Gas Replaces Section of Gas Pipeline

Workers repairing a section of the natural gas pipeline. Source: PDVSA

(Energy Analytics Institute, Piero Stewart, 11.Jul.2018) – PDVSA Gas announced completion of work on the Cariaco-Margarita Wharf section of the Northeast G / J Gas José Francisco Bermúdez pipeline.

Work on the section entailed removing and replacing a 48 meter long section of the 16-inch diameter pipeline that transports natural gas from Sucre state to Nueva Esparta state, announced PDVSA in an official statement.

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Ecuador, Venezuela Output Down, OPEC Reports

(Energy Analytics Institute, Ian Silverman, 11.Jul.2018) – The Organization of Petroleum Exporting Countries published its July 2018 edition of its Monthly Oil Market Report (MOMR).

Crude oil production from Ecuador and Venezuela — the lone countries from Latin America to be members of OPEC — fell this month (see charts).

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PetroCaribe Fund to Flow into Government Coffers

(Jamaica Gleaner, 11.Jul.2018) – In a matter of months, the US$1.6 billion, or more than J$208 billion, now in the PetroCaribe Development Fund (PDF) is to flow to the Consolidated Fund and could be administered as the Minister of Finance sees fit.

The transition is expected to happen by the end of the fiscal year, or by the time PDF Chief Executive Officer Dr Wesley Hughes leaves, that office when his contract expires next February.

Hughes told the Financial Gleaner that since about February this year, the finance ministry has had “preliminary discussions” with the PDF about the planned change in the structure of the fund that at its zenith managed more than US$3 billion in assets.

The talks, he said, mulled what form “integration” could take but arrived at no definitive conclusion. The PDF CEO pointed to the finance ministry as the source for any further questions about precisely how the fund, set up in law to service Jamaica’s debt to Venezuela and provide development funding, would operate as part of the Government’s central operations.

The finance ministry is yet to comment. Finance Minister Nigel Clarke is currently overseas engaging financial markets in a non-deal roadshow.

The PDF gets broad policy directions from the finance minister, but is largely an independent and self-financing entity, whose profits not only serviced Jamaica’s oil debt to Venezuela, but invested, mainly via loans, in development projects. It has pumped more than $335 billion into the economy through project financing, equity investments, and social and economic development grants.

“The expectation is that the fund will become more integrated in the Ministry of Finance. It will continue to operate the elements of managing the loans that are in place and long-term debt repayment commitments to Venezuela,” Hughes said. He, however, declined to speculate on the model by which these aims might be achieved.

In the April 2018 Article IV Consultation report on Jamaica, the International Monetary Fund (IMF) listed the integration of the PDF into Government’s central operations as an outstanding item still to be undertaken by the Jamaican Government.

The IMF report gave a March 2019 date for the completion of the action, which, it said, was an undertaking by the Government dating back to the second standby agreement review in September 2017. Hughes said there was no discussion of this commitment with the PDF at that time.

The change in status of the PDF from a public body corporate to being administered as part of central government is part of a raft of policy measures mandated under the current IMF agreement. The measures include the merger of several government organisations, divestment of some public bodies, and stepped-up initiatives to reduce the size of the public sector and wage bill.

The end of the PDF, as it was established by law under a 2006 amendment to the Petroleum Act, is expected to require legislation in Parliament and, possibly, concurrence from Venezuela, given that the PetroCaribe agreement for the concessionary import of oil remains in force, despite the scaling down of shipments and Jamaica’s massive reduction of its oil debt to Caracas. That debt is now at around US$120 million following the cash repayment of some US$1.5 billion three years ago, in a hugely discounted debt buy-back.

Hughes said closure of the fund was viewed as a possible strategic risk by its management in annual planning and financial projections.

As former chairman of the fund when he served as financial secretary in the finance ministry between 2009 and 2012, Hughes said the PDF was deliberately structured to complement the IMF staff monitoring arrangement that was in force in 2006, as well as to safeguard its mandate as political administrations change.

The insulation measures include the financial secretary’s chairmanship of the board and ex-officio membership on the board, accorded to senior public sector officials, including the Cabinet secretary, the head of the Planning Institute of Jamaica, and permanent secretaries of several ministries, such as the Office of the Prime Minister and the ministry with responsibility for energy. About three members are appointed by the finance minister.

Hughes considers the structure, including its direct reporting to Parliament, as adhering to global best practice.

“It’s not that we are not subject to political directives (but) for the most part these directives have been consistent with the Constitution, rules and regulations. After all, we are a public body; we are subject to Cabinet decisions,” he said.

“Cabinet is the highest decision-making body in the country. If they take a decision, our job is not to question it, but to find out how best and effective we can be in implementing that decision. If you don’t have that approach, anarchy is the outcome,” he added.

He also believes that the structure “has worked”, saying “we have found ourselves with sufficient room to do what we have to do to fulfil our mandates”.

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