SotD 2014: An open-and-shut case 

Mexico’s 2014 energy reforms were historic, but the aftermath demonstrated the hand of politics in infrastructure. 

It was meant to be the start of something new: a market for infrastructure investors underpinned by stable regulation and a need for power. And for a while, that’s exactly what Mexico’s energy reforms provided.   

President Enrique Peña Nieto’s 2014 reforms opened up the country’s oil, gas and electricity markets, which had been closed to private investors for more than 70 years. Gone were the days where Petroleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) kept an iron grip on the market. Private investors were suddenly allowed to build oil and gas blocks and supply power to the market.   

“I think [the reform process] is a very positive step, and [Mexico is] on the verge of an oil and gas boom,” was the reaction in our October 2014 issue from Todd Bright, managing director of private equity in the Americas for Swiss firm Partners Group.  

As local and international private companies lined up to bid for oil and gas blocks, the reform was also a boon for Mexico’s renewables market, which added 5.5GW of new capacity between the end of 2014 and the end of 2018, according to the International Renewable Energy Agency.  

Although the infrastructure market is used to all good things coming to an end, this ending still feels premature. Elections in July 2018 introduced the left-leaning Andrés Manuel López Obrador as Mexico’s president. Obrador had promised to review much of the free-market reforms that had been introduced prior to his election.  

In December 2018, he scrapped future power auctions and railed against the “neglect” of Pemex and CFE, promising to strengthen the two organisations and complaining that the “entire market” had been left to the private sector with “very high costs”. In fact, he said, there was “too much electric power” and the drive for more power “made me laugh”.     

Although the new president maintained that old contracts would be honoured, he was sending a clear signal that the joys of 2014 were to be short-lived. But were they? 

The private sector has seemingly decided to take matters into its own hands. Enter Bravos Energía, founded in 2017 by Jeff Pavlovic and former Mexican energy ministry officials. The energy management services company, based in Mexico City, is organising its own power auction, exclusively for private retailers. The system, according to Pavlovic, will allow multiple buyers to pool demand and try to divide up the pieces of many different generator sources. There remain additional details to be released before its formal launch, but it has received a cautious welcome from emerging-markets specialist Actiswhich  made substantial investments in Mexico under Peña Nieto’s administration. 

Although the energy reforms have produced short-lived immediate effects, their legacy could end up being one of the most exciting things to watch out for.