The Weekly Brief: Mexico

November 20, 2017 edition— Enel took the third power auction by storm; Jalisco asked CRE for ethanol; and the NAFTA talks resumed with tensions.




Last Week in a Minute or Less


Renewables & Electricity. Enel bid big in Mexico’s third power auction and Galt Energy offers financing for affordable solar energy.


Natural Gas & Liquid Fuels. CFEnergía, Emerging America, and The Abraaj Group signed a gas supply deal; Cofece approved IEnova’s share in Los Ramones; and Repsol plans to open 1,200 gas stations.


Oil & Gas Upstream. Pemex issued pounds of debt and the CRE thinks the energy reform will create 500,000 new jobs.


Money & Power. The fifth NAFTA round started amidst tensions; industrial production slowed; and the IMF urged Mexico to control corruption.


Déjà vu all over again. Last week’s readers were particularly interested in the effect of NAFTA uncertainty on Mexico’s oil rounds (Spanish); the states most vulnerable to a possible NAFTA cancelation (Spanish); and the 25 companies interested in Round 2.4 (Spanish).



NAFTA negotiations


The US wants to stop Mexican trucks. US negotiators proposed restrictions on Mexican truckers that could eventually prevent them from operating in the country, according to an industry official familiar with the proposal (English). The US Trade Representative’s office declined to comment.


Businessmen fear the US will leave NAFTA. The International Chamber of Commerce is concerned about the possibility that the US will abandon NAFTA (Spanish). The Canadian, Mexican, and US representatives of the Chamber demanded their governments remain in the NAFTA talks and work to ensure expansion of cross-border trade rather than restricting it.


Mexico will propose an alternative to the sunset clause. In the fifth round of negotiations, Mexico will offer to evaluate NAFTA every five years as an alternative to the sunset clause (English) (Spanish). The Economy Minister stressed the goal is to evaluate the treaty but to avoid its sudden death.


Lawmakers backed the auto industry. More than 70 House Republicans and Democrats supported the US auto industry’s opposition to Trump administration proposals for NAFTA (English). US officials are pursuing major changes to NAFTA auto rules, including a requirement that 50% of parts for vehicles manufactured in North America must be US-made.


NAFTA’s fifth round began without senior officials. Tension surrounded NAFTA talks in Mexico and cabinet officials from the three nations skipped attending the talks for the first time, leaving discussions to their negotiating teams (English). This decision shows that an agreement is not close.



The Road to Reform


The third power auction reached record low prices. The state-owned electricity company, CFE, bought solar and wind energy at prices that are among the lowest worldwide (English) (Spanish). The third power auction will bring an estimated investment of US$2.3bn with the installation of 2,562 MW in 15 new plants (Spanish).


CFEnergía, Emerging America, and The Abraaj Group signed a gas deal. CFEnergía and the consortium of Emerging America and The Abraaj Group signed a US$100 million contract to supply 22 million cubic feet per day of gas for ten years (Spanish).


Jalisco told the CRE it wants alcohol. Jalisco asked the Energy Regulatory Commission (CRE) to modify the Mexican norm that does not allow the metropolitan area of Guadalajara to use ethanol in gasoline (Spanish). The proposal is supported by eight universities, farmers, and the Mexican Union of Gas Station Owners.


The aviation fuel market yearns to be free. The aviation fuel market will be opened. Airlines could buy from the supplier of their choice and Airports and Auxiliary Services (ASA) will no longer be the only seller (Spanish).


The CRE announced 500,000 new jobs with fanfare. The Energy Regulatory Commission declared that the energy reform will generate 500,000 jobs in the next 15 years (Spanish). The new jobs will be created by the companies investing in the country and they will require skilled personnel.



Political Economy


Mexico and Vietnam got closer. Pres. Enrique Peña Nieto and Pres. Traân Dai Quang pledged to strengthen their friendship and enrich the bilateral agenda in all the areas (Spanish). Bilateral trade between Mexico and Vietnam has grown tenfold in the last decade, rising from US$513m to more than US$5bn annually.


Industrial production hit the brakes after the quakes. In September, industrial activity reported a setback for the fourth consecutive month.  Mining, power generation, transmission and distribution, water and gas supply registered a drop of 1.2% compared to the same month in 2016 (Spanish).


Jobs skyrocketed in October. In October, 194,758 formal positions were created, the highest monthly rise on record which means an annual growth rate of 13.5%, according to IMSS (social security) figures (Spanish). From January to October, 1,007,050 jobs were created, an annual increase of 10.2%.


Pemex issued debt in pounds. The state-owned company placed debt for 450 million pounds in international markets (Spanish). The debt matures in 2025 and the yield will be 3.83%.



Market Trends


Inflation went through the roof in October. According to INEGI, October inflation rose to reach 6.37% (Spanish). The hike was driven by normalization of electricity tariffs and public transportation and phone service charges after the earthquakes.


Carstens’ successor needs to be named soon. Pres. Enrique Peña Nieto should send his nominee  for central bank governor to the Senate (English). Only 30 days remain before the legislative session ends. If no successor is in place before Carstens’ departure, a Banco de México board member becomes interim governor (Spanish).


The IMF urged Mexico to boost its rule of law. According to the IMF, Mexico must strengthen the rule of law and combat corruption, informality, and insecurity because these issues hinder economic growth (Spanish). The IMF completed the 2017 Article IV consultation with Mexico, projecting growth of 2.1% this year (English).


CCE expects Mexico could grow by 4%. The Business Coordinating Board (CCE) said Mexico’s economy would grow 4% a year if the government takes measures to ensure a stable platform for private and public investment (Spanish). Regarding the 2018 budget, the business leadership asked the government to reduce expenses and optimize public spending.



Strategy & Operations


Repsol wants to open 1,200 gas stations. Repsol plans to conquer between 8% and 10% of the gas station segment in five years, which would mean creating 1,200 gas stations (Spanish). The Spanish company plans gradual growth in the Mexican market, testing the waters by opening small groups of 50 gas stations.


Chevron cut the ribbon in Baja. The oil company opened its first gas station in La Paz, also its first in Baja California Sur (Spanish). This is Chevron’s sixth gas station in Mexico, adding to its stations in Hermosillo and Navojoa in Sonora, and in Culiacán and Los Mochis in Sinaloa.


Cofece gave IEnova the thumbs up on Los Ramones. The Federal Commission on Economic Competition (Cofece) authorized the acquisition of Pemex’s share in Los Ramones by the Sempra Energy subsidiary (Spanish). IEnova now holds a 50% share of the Ramones II North pipeline project.


Galt Energy pushes for affordable solar energy. Galt Energy’s own finance company, Galt Asset Management, offers flexible credits to make solar energy more affordable (Spanish). The initial investment for a basic solar installation in Mexico City amounts to approximately MXN70,000 and in Monterrey costs MXN 100,000.


Enel bet big in Mexico’s power auction. Enel Green Power participated and triumphed in Mexico’s power auction (English) (Spanish). Enel raised US$1.35bn with a deal to sell stakes in eight wind and solar projects (English) (Spanish). Enel’s strategy is “build, sell, and operate” in Mexico which is a core market.



Old School Social


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


The Mexico Infrastructure & Sustainability Summit is November 21-22 at the Sheraton María Isabel Hotel, in Mexico City.



Lateral Thinking


A robot will be the host at Jalisco talent event. Sophia, the AI robot of Hanson Robotics, will come to Mexico to participate in the Jalisco Talent Land event as one of the keynote speakers (English). Sophia imitates human gestures and facial expressions and makes small talk.



Quote of the Week


“No estudio por saber más, sino por ignorar menos.”


“I don’t study to know more, but rather to be less ignorant.”



– Sor Juana Inés de la Cruz (1651-1695), self-taught philosopher, composer, and poet of New Spain.



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