Energy Reform Still Faces Hurdles in Mexico

Patricio Navia

Buenos Aires Herald, August 5, 2014


President Enrique Peña Nieto’s reform agenda aims to introduce competition in the Mexican economy. Though there has been progress, the insufficiently competitive political system in Mexico — including the need to secure support beyond the ruling-party to pass comprehensive reforms — can end up limiting the scope of the reforms. The low levels of trust people have in politicians can also reduce popular support for an overhaul which has so far been anything but free of trouble.


After being elected president in 2012, Enrique Peña Nieto pushed for a comprehensive reform package aimed at increasing competition in the political system and in the energy and telecommunications sectors. After 12 years of right-of-centre National Action Party (PAN) rule, the old Institutional Revolutionary Party (PRI) was elected back to power. Having previously ruled from 1934 to 2000, the PRI returned to power to a drastically different country. The old ways and means that the PRI used to exercise power were no longer an option. In addition to having less than a majority in Congress — with 42 percent of the seats in the Lower House and 44.5 percent in the Senate — the PRI could no longer count on the disciplined support of mass media. A vibrant and vigilant civil society was well prepared to control that the old patterns of corruption and patronage that characterized the seven-decade PRI rule in the 20th century didn’t repeat themselves.


Peña Nieto both understood the need for (and represented the image of) a new PRI. A former governor of the State of Mexico (the most populated region in the country), Peña Nieto had political experience but was not known to be a master dealmaker. His good looks and his marriage to a soap opera star helped him to stay away from the stereotype of past PRI presidents.


Once in power, Peña Nieto showed his ability to broker agreements with the rightwing PAN opposition and even made some strides with the leftist Democratic Revolutionary Party (PRD).


Less than a year into his administration, Peña Nieto was able to pass key reforms to the political system and the energy and telecommunications sectors. Because all reforms required accompanying legislation, the success was deemed only partial. In recent weeks, as Congress has successfully passed most of the required legislation for the energy reform, the likelihood that the reforms will materialize has increased.

The energy reform seeks to introduce more competition, allowing state giant PEMEX to enter into joint ventures with private energy companies and opening opportunities for foreign companies to produce energy at lower costs. Some of the remaining bills are likely to pass before Congress adjourns, unusually late, for the summer break in mid-August.


There are still some difficult hurdles ahead. The left-wing PRD will try to put the reforms to a referendum when the mid-terms elections are held in July of 2015.


The political reform passed in 2013 allows for national referendums, but details on how they will be regulated have not been worked out. It is not clear if a referendum can be held on a reform that has already been promulgated, but the PRD will likely try to convert the alleged privatization of PEMEX into a campaign issue for 2015, and probably also for the 2018 presidential election. If the referendum is held, Peña Nieto will have to campaign decisively to convince Mexicans that his reform will strengthen PEMEX, not privatize it.


The reforms have been received with cautious enthusiasm abroad. At home, Peña Nieto has struggled with their approval. Unlike the two previous presidents, Vicente Fox (2000-2006) and Felipe Calderón (2006-2012), both from the PAN, Peña Nieto has not enjoyed high approval ratings. This might seem ironic as Fox and Calderón led disappointing governments, at least in terms of economic growth and their ability to push for reforms. At similar moments in their administrations, Fox and Calderón had 63 percent and 61 percent approval respectively. Peña Nieto’s approval is at 40 percent. Because many in the left and right deeply dislike the PRI, Peña Nieto has struggled to gain support beyond the 38 percent that gave him a plurality victory in 2012.


In pushing forward his reforms, Peña Nieto has shown more political skills than his predecessors. Unfortunately, the economy has not shown signs of improvement. Since 2000, the Mexican economy has grown at less than two percent a year.


The Mexican Central Bank recently revised its growth estimate for 2014 down from 3.3 to 2.3. The government insists that the reforms will help jumpstart the economy. Though there are good reasons to believe that if enacted, reforms will restore confidence in the Mexican economy, markets continue to be skeptical about the future of the overhaul.


In the months ahead, President Peña Nieto will need to convince economic actors that he is serious about pushing for reform. At the same time, he will need to convince Mexicans that the overhaul will not lead to the privatization of PEMEX. That will not be an easy job considering that polls indicate that 51 percent of Mexicans never or almost never believe what the president says.