Bright Star of Mexico’s Energy Reform Bowing Out Of Spotlight

(NGI, Ronald Buchanan, 15.Nov.2018) — One of main energizers of Mexico’s nascent energy reform, Juan Carlos Zepeda, has resigned as president of the upstream regulator, the Comisión Nacional de Hidrocarburos (CNH), with only five months to go before the end of his second five-year term.

As the head of the independent, although not totally autonomous regulator, Zepeda has been considered a bright star as the head of an institution that has provided transparency in what were the first upstream auctions in Mexico for more than a century.

Yet with a new Mexican administration waiting in the wings for a Dec. 1 inauguration of President-elect Andrés Manuel López Obrador, the resignation has come at a critical juncture, said George Baker, who is president of Mexico Energy Intelligence.

Baker emphasized that the incoming administration is full of critics and former opponents of the energy reform, even though López Obrador has promised to keep things status quo — for now.

“Everything is so fragile at the moment,” Baker said. “Because of that, the timing of the resignation doesn’t seem to make sense, particularly because Zepeda is a very loyal public servant in the best of the Mexican tradition.”

However, consultant Luis Miguel Labardini, a partner in Mexico City-based Marcos y Associates, told NGI’s Mexico GPI, that he has a different view.

“It is evident,” he said, “that Zepeda is one of the main characters in the reform, and that the new administration has a different view of the oil and gas sector, that does not necessarily match the philosophy of the reform as it was originally conceived.

“Therefore, the new administration will place someone who is more in tone with their views on what the sector should do from now on.”

That, in a nutshell, is what Zepeda himself has said. Recent columns in Mexico newspapers claim that incoming Energy Secretary Rocío Nahle had ordered Zepeda to resign. Columnists also have claimed that Guillermo Garcia Alcocer, president downstream regulator, the Comision Reguladora de Energia (CRE), was also told to resign. As of Thursday, he remained at his post.

In any case, Zepeda said in a radio interview that he was under no pressure to step down.

Like many other Mexican officials as the change in government looms, he said he is planning to move into the private sector and work for a capital fund that specializes in energy and infrastructure, “though nothing that has anything to do with what the CNH is responsible for.”

Zepeda also added that Nahle, rather than order him to resign, had invited him to be a part-time external adviser to the ministry. Like Labardini, he conceded that there will be a “new look” to the reform under the future administration.

Zepeda may, in fact, not be the last regulator to step down. “There’s going to be a hemorrhage of competent technocrats because their salaries are going to be at least 40% lower,” The Baker Institute for Public Policy’s Tony Payan said Tuesday at the US-Mexico Natural Gas Forum in San Antonio, TX, shortly before rumors of Zepeda’s impending departure began circulating on Twitter.

“And many people are already retiring, by the way,” Payan, who directs the institute’s Mexico Center, said. “I know quite a few people” at Petroleos Mexicanos (Pemex) “who are already retiring before Nov. 30, so that they can retire at the current salary.”

In many ways, Zepeda has been one of the most prominent figures to emerge from the energy reform.

The reform’s architect, current President Enrique Pena Nieto, has seen the energy reform lose its sparkle in recent years under a swamp of media accusations of corruption and rampant crime, which were reflected in July’s overwhelming victory in July by his sworn political enemy, López Obrador.

Pena Nieto is due to hand over power in December, but he has effectively abdicated, in a way that is without precedent in Mexico. In all but name, López Obrador to many has been the nation’s president since his election.

Current Energy Secretary Pedro Joaquin Coldwell is a worthy veteran of Mexico’s political scene, but Zepeda rapidly stole the reform show with his innovation and verve. As others sought excuses for the disappointing results in 2015 of the first upstream auctions for the best part of a century in Mexico, he got down to business.

What he explained then was that Mexico had to ask the companies what they wanted from the auctions, not the other way around. Where the approach had been “take it or leave it,” the companies were invited to make clear their preferences for auctions. The result has been more than 100 contracts that are valued, by official calculations, at $180 billion total.

Unlike many public servants who have worked on the reform, Zepeda has appeared to never regard the reform’s terms and conditions as though engraved on a tombstone. In triumphant tones, several officials and their acolytes proclaimed that the energy reform was irreversible, a word that they often pronounced with considerable emphasis.

What is happening now in Mexico, with the reform under fire from several sides in a polarized nation, gives the lie to those claims, said Baker.

Pemex, 100% state-controlled like Saudi Aramco and Venezuela’s PDVSA, Baker pointed out. Others such as Colombia’s Ecopetrol, Norway’s Equinor ASA, have mixed capital, in which the public can buy and sell shares. “That is a democratic system. It breaches no return to a state monopoly unless the state itself becomes a monopoly,” said Baker.

Even before the reform was enacted, many analysts urged a “big bang” public offering of Pemex to herald it. None was ever attempted, and the most recent indications are that one would now take about five years to organize.

Nobody else within the government appeared to give more than a hint in order to break the impasse. Nobody, that is, except Zepeda, who has proposed within several forums to preserve the virginity of Pemex as a state enterprise while, as in China, private investment is drawn in to it by a state capital fund that operates in international markets.

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