Andres Manuel Lopez Obrador will become president of Mexico on Dec. 1 wedged precariously between the promised and the possible. For the aggressive liberalization of energy policy inaugurated by his predecessor, Lopez Obrador’s July 1 election raises questions but doesn’t yet warrant alarm.
While preparing for his campaign, the populist former mayor of Mexico City sounded more threatening to energy reform and ensuing contracts than he does now. He once flatly opposed the 2013 constitutional reforms that ended the monopoly of state-owned Pemex and opened exploration and development to foreign investment. By the time he published a policy catalog last December, he had softened his position to say he would “ask citizens” about their support for reforms in energy and other areas. And he says he’ll honor existing contracts.
Repeal difficult
Outright repeal of energy reform, if the president-elect harbors such thoughts, would be difficult. President Enrique Pena Nieto, limited to one term and very unpopular, fixed reforms in place with constitutional amendments and legislation. Lacking a majority in Congress, Lopez Obrador can’t change the constitution. But he has legal room to stall what has been a fruitful effort to attract foreign investment to Mexican oil and gas exploration. If delay is his aim, he’ll have to consider the funding needs of other parts of his program in the context of prospective revenue from discovery and production.
Lopez Obrador’s plans for Pemex are mostly unclear and contradictory where they’re not. The president-elect has criticized the bloated company in the past but now says he wants to reinvigorate it. He hasn’t indicated what that means. His policy document calls on Pemex to build two refineries by 2024 and develop energy from renewable sources.
Projects such as those require large investments by a company historically managed as a generator of cash for other government programs, although the squeeze on Pemex has loosened recently. Because a steady drop in production of crude and other liquids from 3.8 million b/d in 2003 to 2.26 million b/d in 2017 darkens the revenue outlook, the need for money might further assuage Lopez Obrador’s distaste for energy reform. It also might make him rethink the need, obviously based more on energy nationalism than on a clear-headed assessment of project economics and regional markets, for greenfield refineries.
The president-elect will have to manage these and other practicalities without appearing to compromise his promised fight against corruption, a dominant issue in the election and a strong reason he was elected. That won’t be easy.
Corruption and concern about it in Mexico are not new. In an annual assessment by Transparency International, Mexico last year had a Corruption Perceptions Index of 29 on a scale where 0 is “highly corrupt” and 100 is “very clean.” A 2017 study by the World Bank cited estimates from inside the country that, in 2010, Mexican households spent an average 14% of their income on corruption. For low-income households, the share was 33%. The figures partly explain the popular scorn that befell Pena Nieto after 2014 reports that he and his family occupied a multimillion-dollar house owned by a government contractor. Anticorruption fervor will keep pressure on Lopez Obrador to do more than give speeches and hold meetings about the subject.
Complicating the challenge
The president-elect’s energy agenda will complicate the challenge. Pemex has addressed its legacy of corruption with commendable improvements in transparency but still employs many workers close to the heavy flows of money characteristic of oil and gas work. The threat of corruption is inherently high. And the Lopez Obrador’s least ambiguous energy ambitions would expand Pemex to develop noncommercial energy and build economically questionable refineries. Those endeavors would involve many contracts and lots of money disciplined not by commerce but, ultimately, by politics. These conditions do not resistance to corruption.
Still, Lopez Obrador has proven to be flexible, and he has 5 months to ponder his tradeoffs. Here’s hoping he settles on the right combination.
