Mexico dreams face test after opening to investors

Published on NewsOK Modified: August 7, 2014 at 2:10 pm •  Published: August 7, 2014
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MEXICO CITY (AP) — Mexico has passed laws to open its oil, gas and electric industries to private and foreign investors after 76 years of state control. Now comes the hard part.

Experts say Mexico's hopes for tens of billions of dollars in outside investment, and possibly a shale gas boom like the one occurring across the border in Texas, hinge on being able to design the kind of tenders, contracts and concessions that would actually prove attractive to companies that already have their hands full drilling in deep sea waters and hydro-fracking elsewhere.

On that question hinges Mexico's hope for an industrial boom.

Mexico says it is stepping into new era following the approval of the final bills late Wednesday. The country has been pinning its hopes on becoming a low-wage manufacturing center, but growth has been limited by unusually high electricity rates and the need to import massive quantities of natural gas at high prices.

Mexico's oil and gas production peaked in 2004 at 3.4 million barrels a day. It has fallen steadily since to the current 2.5 million barrels. With the reform, the government hopes to increase that to 3 million barrels by 2018 and 3.5 million by 2025, by attracting private companies with the expertise and technology to exploit the country's vast shale and deep-water reserves.

The first contracts and concessions for drilling blocks are expected in 2015, and the government hopes to draw more than $10 to $15 billion in private investment in the industry per year.

But those hopes are running up against hard realities: the Mexican government and the state-owned oil company have little experience at putting out attractive contracts for bid, or at managing them with clarity and transparency.

"When the contracts are drawn up and bidding is opened, that will be the acid test for the energy reform," said Alfredo Coutino, Latin America director for Moody's Analytics. "Investors aren't convinced by industry openings; investors are convinced by what is put down in black and white" on contracts.

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