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Mexico’s PAN seeks more flexible local content rules on oil

NACHA CATTAN and ADAM WILLIAMS

MEXICO CITY (Bloomberg) -- Mexico’s lead opposition party seeks to incorporate more flexible national content rules as congress debates additional bills to the landmark oil law passed last year, an opposition senator said.

The National Action Party, or PAN, wants Mexico’s energy regulator to have the ability to adjust local content laws that will determine the amount of Mexican companies’ involvement in new energy projects, Jorge Luis Lavalle, a member of the senate’s energy committee, said in a phone interview. The minimum national content proposed by the government in the secondary legislation on April 30 would guarantee at least a 25% average for Mexican participation by 2025.

“The wording should be left with certain flexibility so that depending on the field and type of contract, the National Hydrocarbons Commission can determine the percentage, or the type of national content,” Lavalle said. “There could be many variables” detailed in the legislation. The National Hydrocarbons Commission, or CNH, is Mexico’s oil regulatory body.

The PAN’s position “solidifies the view that the energy reforms are truly pro-business,” Alejandro Silva, a founding partner at Chicago-based Silva Capital Management, said in an email. “There are still many skeptics that, until all the details are released, believe that Mexico’s energy reform is not truly transformational.”

The peso was little changed at 12.9037 per dollar in Mexico City. News of the PAN’s position on national content probably helped strengthen the currency earlier in the day, when it reached a high of 12.8708, Silva said.

Mexico ended Pemex’s 75-year state-run oil monopoly previous year when President Enrique Pena Nieto signed a law to allow for private investment in the energy industry. Secondary legislation to the law proposed to congress last month may be approved by June, according to legislators from Pena Nieto’s Institutional Revolutionary Party, or PRI.

“Generally, for oil and gas companies, having a more flexible national content regime is more favorable,” Gabriel Salinas, an energy lawyer at Houston-based Mayer Brown, said in a telephone interview. “Now, you have a lack of clarity which isn’t favorable for anyone” in the government’s bill.

Mexico’s secondary legislation should be “broadened” and the CNH should be allowed to adapt local content levels that take into account Pemex’s lack of experience in deepwater fields and expertise in shallow waters, Lavalle said. The PAN seeks to “guarantee that national content represents an incentive for the industry and not a barrier, as occurred in Brazil,” he said.

In Brazil, a deficit of manufacturers and shipyards made it slower and more expensive to supply large projects with locally made equipment. The country’s oil regulator has fined producers including Petrobras and Shell for failing to meet local content requirements.

Brazil’s minimum local content requirements vary from contract to contract. At Libra, the most recent field awarded by Brazil’s oil regulator, or ANP, Petrobras and its partners need to use a minimum 37% local content during exploration and 55% during development.

The PAN is reviewing clauses in the secondary legislation that would allot Pemex as much as 30% participation in certain oil fields, Lavalle says. The party wants to avoid “uncertainty for players in the sector,” he said.

05/15/2014

 

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