Mexico’s reforms could boost infra investment

The reforms Mexico’s government is pushing forward are ambitious and likely to have a positive impact on the economy in general and infrastructure specifically, a new report finds.

The reforms implemented by Mexican President Enrique Peña Nieto across energy, infrastructure, telecommunications, competition and tax laws may create significant opportunities for investors, according to a new report by global law firm White & Case.
“Spotlight on Reforms in Mexico” examines key changes in the country’s laws and regulations, such as the opening of the oil sector to foreign investors, adopting a transparent bidding process aimed at reducing corruption, changes to bankruptcy law that would encourage bank lending, and a relaxation of labour laws.

“The Mexican government is pushing forward an ambitious set of reforms that will have an impact on its growing economy,” said Someera Khokar, the Americas regional section head for the Energy, Infrastructure, Project Finance and Asset Finance Group of White & Case, in a statement.

The biggest victory scored by Peña Nieto, who assumed office in late 2012, was last December “when Congress approved the end of the 75-year-old stranglehold that state-owned firm PEMEX had on the oil sector,” White & Case states in its report.

While Mexico has some of the largest oil reserves in the world, PEMEX did not have the resources to increase production. The monopoly of electricity markets has also ended.

“Both measures combined are expected to result in higher production of oil and lower electricity prices for companies and consumers as well as tens of billions of dollars in foreign direct investments in the energy sector,” the report states.

Aside from the energy sector, others – such as transportation, nuclear power, and supervision of ports of entry – have also been state-controlled with even Mexican entities not allowed to invest. This has led to under-investment in infrastructure according to White & Case.

“Such demonstrable need, combined with proposed legislation allowing private investors to have a more prominent role in previously restricted sectors, have positioned these sectors as prime targets for international investment,” the law firm states.

One of the authors of the report and a partner at the Mexico City office of White & Case, Iker Arriola, notes that the transition process is at a very early stage. Reform of the oil and gas sector for example, is at the constitutional level, and will require at least 20 secondary laws and regulations to be implemented before reforms can come into effect.

Still, he is optimistic about investment opportunities in what is the second-largest economy in Latin America.

“Opportunities for public-private partnerships will arise everywhere the public budget is short, and needs exist for the population and the economy,” he says.

“The reforms are the big engine that will change the way Mexico generates wealth,” he concludes.

The report is the second in a series White & Case is developing focusing on Mexico.

The first, titled “Open for Investment: How Mexico is Paving the Way for Infrastructure Investors,” was released on February 25 and examined Mexico’s new enabling P3 legislation, which was enacted in January 2012.

Founded in New York in 1901, White & Case now has a global presence with lawyers in 39 offices in 26 countries. Its Global Energy, Infrastructure and Project Finance practice is regularly a lead advisor on major infrastructure and energy projects around the world, including Mexico.