The Weekly Brief: Mexico


December 9, 2019 edition—Enel’s solar; Pemex’s exploration plans; and private fuel imports up.





Last Week in a Minute or Less


Renewables & Electricity. Enel cut the ribbon on Tlaxcala’s first solar plant; the first private power auction was a hit; and CFE will buy coal from Coahuila.


Natural Gas & Liquid Fuels. Mexico’s private fuel imports are expected to go up; and violence is putting LP gas supply at risk in Veracruz.


Oil & Gas Upstream. The CNH okayed Pemex’s exploration plans; Pemex delayed Zama’s unification; and businessmen don’t know how AMLO will evaluate oil contracts.


Money & Power. Mexico offered a compromise on labor to end the USMCA impasse; Banxico dropped Mexico’s growth outlook for 2020; and fiscal income keeps dropping.


Déjà vu all over again. Last week’s readers were particularly interested in the Veracruz-Yucatán pipeline (El Economista – Spanish); the pause on CEL changes (El Financiero – Spanish); and the gas flows at the Sur de Texas pipeline (Platts – English).



NAFTA Negotiation


Funds to finance Mexico’s labor reform are being considered. According to the Globe and Mail, Mexico is negotiating ways to obtain funds from Canada and the US to fulfill the labor promises included in the new NAFTA (El Economista – Spanish) (The Globe and Mail – English). One way to deliver the funds could be to expand the North American Development Bank’s mandate.


Mexico offered a compromise on labor to end the impasse… President López Obrador announced that he will allow panels with US and Mexican judges to resolve labor disputes at certain factories (Bloomberg – English) (El Financiero – Spanish). AMLO had previously rejected the presence of US inspectors in Mexican companies to verify the enforcement of the labor reform.


…and the US turned to drug protections. US Democratic lawmakers are pushing to drastically ease the protection for biologic drugs (Reuters – English) (El Financiero – Spanish). The change will eliminate NAFTA’s 10 years of market protection.


Robert Lighthizer is working on a quick USMCA ratification. US Trade Representative Robert Lighthizer continued meetings with lawmakers, White House representatives, and businessmen to close the USMCA negotiations (El Economista – Spanish). Mexico’s negotiations with US officials continued on December 4, and the goal is to reach an agreement before the end of the year (Reuters – English).



The Road to Reform


The CNH okayed Pemex’s exploration plans. The National Hydrocarbons Commission (CNH) approved the state-owned company’s five exploration plans with an investment of US$1.3bn (El Financiero – Spanish). The plans are part of the 64 assignments handed to Pemex on August 28, 2018.


The CFE modified the general disposition regarding acquisitions and service contracts. The state-owned company published the modification of general dispositions in CFE’s acquisitions, renting, service contracts, and building execution (DOF – Spanish). The goal is to transform the acquisitions system into a strategic activity to fulfill CFE’s objectives.


Pemex delayed Zama’s unification. The National Hydrocarbons Commission (CNH) approved the exploration plan for Pemex’s Chalabil and Uchukil, next to the Zama field (El Economista – Spanish). Pemex presented an incremental scenario that included drilling the Asab 1 well as part of the field unification.


Businessmen don’t know how AMLO will evaluate oil contracts. Energy sector businessmen said that they don’t know what criteria will be used to evaluate the success of the 111 oil contracts awarded in the oil rounds, and that will determine if there will be more rounds (El Financiero – Spanish) (Reuters – English).


Cofece closed the investigation on smart meters. The Federal Commission of Economic Competence (Cofece) closed the investigation against Grupo IUSA due to alleged irregularities in the sale of power meters to CFE (El Financiero – Spanish). Grupo IUSA was suspected of collusion in public processes.



Political Economy


Banxico dropped Mexico’s growth outlook for 2020. Mexico’s central bank cut its economic growth outlook for 2019 and 2020. Banxico lowered its previous estimate from between 1.5% and 2.5% to between 0.8% and 1.8% (El Financiero – Spanish).


Sener is happy with Pemex’s and CFE’s performance. The Energy Ministry emphasized the production increases and financial improvements both in Pemex and CFE (El Economista – Spanish). President López Obrador insisted that the fall in crude production was stopped in his first year of government (El Financiero – Spanish).


Fiscal income keeps dropping. The stagnation in Mexico’s growth affected the public sector budget, which amounted to MXN391bn in October, a 11.6% fall compared to the same month in 2018 (El Economista – Spanish). Income from oil sales abroad dropped by 40%.


S&P lowered Mexico’s GDP growth to 1%. The rating agency expects Mexico’s economy to continue with low growth in 2020 and lowered its growth outlook from 1.3% to 1% (El Economista – Spanish). S&P expects uncertainty regarding President López Obrador’s policies to continue.



Market Trends


Fibra E Orión is expected to be a big hit. Fibra E Orión is expected to end the Mexican market’s dry spell with an offer of MXN610m in the Institutional Value Market (El Economista – Spanish). The trust plans to invest in the infrastructure and energy sectors.


Moody’s is not optimistic about the states’ future. The rating agency said that the credit outlook for Mexico’s states is negative due to forecasted low growth in federal transfers (one of the lowest in 10 years) and weak economic performance (El Financiero – Spanish).


Red Girasol will boost renewables through crowdfunding. Red Girasol, a crowdfunding platform, is consolidating as an option to finance clean energy projects (El Economista – Spanish). The platform has financed 200 projects, handing out credit to acquire and install solar panels.


Mexico’s private fuel imports are expected to go up. Private imports of refined products to Mexico reached a high share of 32.69% in July. The increase in infrastructure investments and the national supply shortfall are expected to boost private fuel imports in 2020 (Platts – English).



Strategy & Operations


CFE will buy coal from Coahuila. The state-owned company agreed with Coahuila’s coal producers to restart purchasing the mineral with an order of 80,000 tons (El Financiero – Spanish). The agreement was reached almost a year after the National Center of Energy Control suspended the purchase.


Violence risks LP gas supply in Veracruz. LP gas distribution companies said that insecurity in three Veracruz municipalities, Córdoba, Orizaba, and Fortín de las Flores, has resulted in a risk to the fuel supply in the region (El Financiero – Spanish). There is illegal gas distribution in that area.


The first private power auction was a hit. The first long-term auction organized by the private sector attracted more than 70 companies to the process, both generators and power buyers (El Financiero – Spanish). The auction has become an opportunity after the cancellation of state-run long-term and medium-term power auctions.


Enel cut the ribbon on Tlaxcala’s first solar plant. Enel Green Power opened Magdalena II, a solar plant located in the Tlaxco and Hueyotlipan municipalities, which required an investment of US$165m (Forbes – Spanish). The power produced in the plant will be sold to private buyers.



Old School Social


Events in the world beyond your screen—go see and be seen!


Mexico WindPower will be held March 4-5 at Centro Citibanamex in Mexico City. Mexico WindPower is the premier wind energy event in Mexico with nine consecutive years showcasing the latest in innovations and technology for leading national and international decision-makers.



Lateral Thinking


Mexican students failed the PISA tests. Mexican 15-year-olds had the lowest score among the 36 OECD member countries in mathematics, reading, and science (Mexico News Daily – English). The PISA results showed that 35% of the students did not reach the minimum level of proficiency in the three subjects.



Quote of the Week


“La prensa no solo es el arma más poderosa contra la tiranía y el despotismo, sino el instrumento más eficaz y más activo del progreso y de la civilización.”


“The press is not only the most powerful weapon against tyranny and despotism, it is also the most effective and active instrument of progress and civilization.”



– Francisco Zarco (1829-1869), Mexican politician, journalist, and historian.



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