Mexico's outlook

The election of a new government may speed the liberalization of the Mexican energy sector.

The election of a new government may speed the liberalization of the Mexican energy sector.

Vicente Fox and his center-right National Action Party (PAN) swept Mexico's national elections July 2, ending the 71-year reign by the Institutional Revolutionary Party (PRI).

PAN will control both houses of Congress, directly or indirectly. Fox will be inaugurated president on Dec. 1 for a 6-year term.

The president-elect, as a former head of Coca Cola Co.'s Mexican subsidiary, plans a more businesslike approach to government.

For example, he hired an executive-search firm to help him find the most qualified candidates for the 18 cabinet seats and another top 250 government jobs, rather than just fill them with political allies.

PAN's ranking member on the Senate energy committee, Francisco Salazar, is likely to be named energy minister or Petroleos Mexicanos president. Current Energy Minister Luis Tellez may be retained in another position.

Change planned

During his election campaign, Fox pledged his government would not attempt to privatize Pemex.

Pemex is protected by the constitution and is both the largest nongovernment employer and largest source of government revenue.

But Fox reportedly wants to Pemex to be operated less like a state monopoly and more like a competitive international oil company.

PAN wants to encourage foreign investments to expand the electricity, refining, and petrochemicals industries. Mexico has allowed private domestic and foreign firms to invest in electric generating plants and gas distribution systems in recent years, but the current programs haven't been entirely successful.

The electric sector is estimated to need $48 billion in private investment over the next 7 years for expansions and upgrades.

Earlier this month, Pemex announced it plans to spend $4 billion on natural gas and petrochemicals development in 2001-05. A key goal was to take gas production to about 6 billion bcfd from the current 4.75 bcfd currently, largely to meet growing electricity demand.

Perspective

George Baker, research director for Mexico Energy Intelligence, Houston, said change won't come easy for Fox.

He observed that the current government also wanted to attract private investment for the energy industry, and except for opening natural gas distribution franchises, was largely unsuccessful.

Baker said one problem is that Mexico's state energy companies have kept all of the recent governments "on a lean diet" of information.

He said, "The new government's challenge is to inform itself, not by reading the glowing reports from state energy companies, but with data from a broader perspective that includes international comparisons."

Baker said Fox, with his business background, is familiar with international management principles and the need for cost-per-unit data. "This is a point on which the Mexican government has been completely blind."

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