February 20, 2017 edition— The third electricity auction date is announced; ENGIE will light up Mexico; and Tillerson and Kelly are coming.
Last Week in a Minute or Less
Renewables & Electricity. ENGIE and Enlight will install solar panels in 40,000 homes; the MEM is full speed ahead; and the Cenace announced the date for the third auction.
Natural Gas & Liquid Fuels. ATCO stopped the Tula natural gas pipeline and gasoline prices went down.
Oil & Gas Upstream. Alfa abandons the energy sector; Sagarpa invested in biofuels; and non-OPEC members comply with 40% of their cutback pledges.
Money & Power. Tillerson and Kelly will come to Mexico and expensive financing hinders the reform.
Déjà vu all over again. Last week’s readers were particularly interested in the NAFTA renegotiation (English); the MXN97bn lost in illegal taps (Spanish); and Pemex’s plan for seven new farm-outs (Spanish).
The Road to Reform
The Cenace announced the third auction calendar. The National Center of Electricity Control (Cenace) said that the call for the third auction will be launched by April 28, while the results are expected by October 16 (Spanish). The first two biddings will bring US$6.6bn in investments of 34 firms to create 55 companies.
Expensive financing puts the brake on the reform. Mexican companies specialized in electricity projects, could lose market share due to high interest rates of financing in Mexico (Spanish). Local companies cannot win against foreign companies and are looking for financing opportunities abroad to compete on a level playing field.
Baja California and Sonora gasoline prices change hourly. The Energy Regulatory Commission announced that, as of March 30, in Baja California and Sonora new gasoline prices will change every hour (Spanish). Gas stations will have to give notice of the price change 60 minutes in advance through an electronic system.
MEM, at full sail. After signing contracts with the 23 winners in the second auction, Energy Ministry officials announced that 63 companies have requested an operating contract for the Wholesale Electricity Market (MEM) (Spanish). Today, only CFE, Energía del Valle de México, Fisterra, Gas Natural Fenosa, Generadora Fénix, Iberdrola, and Sumex are operators.
Political Economy
Tillerson and Kelly head to Mexico. The US Secretary of State, Rex Tillerson, and the head of Homeland Security, John Kelly, will visit Mexico on February 23 (English) (Spanish). They will meet with Mexican officials to continue working “in favor of a respectful, close and constructive relation” between Mexico and the US.
Postponing the rise in gasoline prices affects liberalization… According to CI Banco Casa de Bolsa, the two-weeks delay in the hike in gasoline prices does not help communicate the liberalization strategy or strengthen public finances (Spanish). An academic analyst considers the decision is political and is not market-based (Spanish).
…and the government softened the blow lowering gasoline prices. The Finance Ministry announced the new gasoline prices, a reduction of two cents per liter by adjusting the special tax on gasoline (Spanish). According to the Finance Ministry, gasoline prices will be determined daily using the formula fixed last year.
Sagarpa invested MXN529m in developing biofuels. The Agriculture, Livestock, Rural Development, Fishing, and Food Ministry (Sagarpa) announced investments of MXN529m in the past four years for research, cultivation, and production of biofuels (Spanish). Seven plants were installed, six for biodiesel and one for bioethanol, with total production capacity of 42.2 million liters annually.
Protests continue as Hidalgo and Querétaro highway toll booths are taken. Protesters against rising gasoline prices took over toll booths on the México-Tuxpan and México-Querétaro highways during Pres. Peña Nieto’s visit to the region (Spanish). There were also protests in Morelos and Oaxaca, while a payment strike against the CFE started in Chihuahua.
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Market Trends
Pemex places 4.2bn euros in three tranches. The state-owned company issued 4.25bn euros in a triple tranche bond, the largest euro-denominated corporate bond ever in an emerging market (English) (Spanish). Pemex’s debt rating is Baa3/BBB+/BBB+ and BNP Paribas, Crédit Agricole Corporate and Investment Bank, Deutsche Bank, and HSBC placed the sale.
Afores inject liquidity into CFE and Pemex. Afores invested MXN100.3bn in state-owned companies, 3.2% of the investment portfolio through the third quarter of 2016 (Spanish). The amount could be tripled in coming years, reaching 10%, according to the latest changes made by the National Commission of the Retirement Savings System (Consar).
Non-OPEC members comply with 40% of the agreement. In January, 11 non-OPEC oil producers who agreed on the output cut delivered 40% of their pledged curbs (English) (Spanish). OPEC’s data showed compliance at 92% and the low compliance for non-OPEC is explained by Russia’s phased implementation.
Mexico’s FDI was cut by 5.8% in 2016. According to the Finance Ministry, Foreign Direct Investment (FDI) dropped by 5.8% in 2016, reaching US$26.7bn, compared to the US$28.3bn recorded in 2015 (Spanish). The FDI for new investments amounted to 37.8% of the total 2016 investments.
IMF said healthy public finances make for stronger countries. The International Monetary Fund (IMF) recommends governments face uncertainty by increasing revenues through creating innovative fiscal systems (Spanish). Christine Lagarde commended Mexico for increasing non-oil revenues by more than 3% of GDP by widening the VAT base and increasing taxes on energy and income tax.
Strategy & Operations
ATCO held up the Tula’s pipeline work. The Canadian company ATCO stopped construction of a 17-km pipeline which will bring natural gas to CFE’s plant in Tula, Hidalgo. The stoppage is due to an injunction filed by social groups which specialists consider “unfounded” (Spanish).
ENGIE and Enlight agreed to install solar panels in 40,000 homes. The French and Mexican companies signed an agreement to install and operate solar panels in homes and stores to generate and control energy use in the next five years (Spanish). This year alone, ENGIE expects to register 17,000 clients.
Siemens bets US$200m in Mexico over 10 years. The German company will invest US$200m in the next ten years in Mexico to create 1,000 new jobs to develop the health, energy, and education sectors (Spanish). The investment could spawn projects worth US$36bn, improving Mexico’s technology and fostering innovations in industry.
Hurt by oil prices, Alfa abandons the energy sector. The Mexican conglomerate will wind down most of its oil activities following the drop in prices last year (Spanish). Alfa reported a US$43m loss in the fourth quarter of 2016, compared to the MXN162m profit registered in the same period in 2015 (English).
Old School Social
Events in the world beyond your screen – go see and be seen!
The Quality Management System for Companies which service Oil and Gas Industry is February 23 at the Club de Industriales, Polanco.
The Pecom Petroleum Exhibition & Conference of Mexico is March 28-30 in Villahermosa, Tabasco.
Lateral Thinking
Mexican scientists find a new dinosaur. Coahuila Desert Museum (MUDE) scientists discovered a new dinosaur and named it Yehuecauhceratops mudei, a combination of the Nahuatl “yehuecauh” (ancient), the Greek word “ceratops” (face with horns), and “mudei” in honor of the museum. No other ceratopsid dinosaur has a protuberance in its skull (English).
Quote of the Week
“Aunque un tirano no debiera temer más que la pluma de un Tácito, esto sería suficiente para hacerle temblar.”
“Although a tyrant should never fear more than the quill of a Tacitus, that would be enough to make him tremble.”
– Ignacio Manuel Altamirano (1834-1893), Mexican writer, politician, and journalist
We hope you have a productive week. Please send any news, comments, or new dinosaurs to MexicoWeekly@energynarrative.com.
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