Mexico Energy Secretariat Senior Advisor on Hydrocarbon Policy, Spurring Increased Competition, and Regulation

Three years ago, Mexico opened up to private energy firms, ending state-owned Pemex’s monopoly in the oil and gas industry. I spoke with Priscila Rodríguez Santamaría, senior advisor for hydrocarbon policy to Mexico’s Energy Secretariat, about this new period in the history of Mexico’s oil industry.

Priscila is a petroleum economist with 10 years’ experience on economic analysis of new business opportunities for hydrocarbon projects. She spent eight years at Pemex, analyzing economic terms for service contracts before the 2013 energy reforms opened Mexico’s oil sector to foreign investment.

We spoke in Oxford, U.K., where Priscila attended NRGI’s 2017 Executive Course on Oil, Gas and Mining Governance.

Priscila Rodríguez Santamaría

Sidra Khalid: What do you understand “good governance” to mean?

Priscila Rodríguez Santamaría: Good governance is synonymous with good management. You need to lay out clear ground rules with an adequate level of structure, capacity, skills and metrics. When you have this framework in place, it is easier for governments to manage a country. This includes its natural resources.

Let’s talk about Mexico. What challenges has Mexico faced since the government opened the oil and gas industry to private investors?

We have had many challenges. First, we did not have strong enough institutions. This has improved over time, but we initially had to create new institutions and reinforce existing institutions to give them more independence and autonomy. For example, the National Hydrocarbons Commission needed increased autonomy to ensure a transparent process and bidding rounds, in accordance with best practice. Also, our market conditions at the time were absolutely disadvantageous for generating competition. We had a lot of subsidies, in almost every part of the energy chain. So we had to try and eliminate these in the best way possible. The other issue was that the public was very accustomed to having these benefits and subsidies in place. In order to generate competition we had to move toward market pricing, with the correct incentives and signals. It’s complicated. Recently, we increased the price of gasoline and it was very difficult because it angered a lot of people.

So it was almost like increased transparency and liberalization around prices had a very visceral effect on everyone who was involved.

Yes. People thought that the new conditions would not be as beneficial as the situation before. We have problems such as inflation and excessive price volatility, whereas before we had just one price for gasoline in every part of the country. The price is more stable now and has fallen thanks to lower global oil prices but our consumption is increasing a lot. We are the fourth-largest consumer of gasoline in the world! There are 120 million people in my country, so it’s unsustainable. It was necessary to cut subsidies, even if it caused a period of instability. If you don’t have a flexible gasoline price, if you don’t have market prices, nobody wants to engage with you in the global market.

What are the specific challenges of working with national oil companies versus private ones?

I think one of the main challenges is to have the same treatment across the board for both. For the private sector, we need to incentivize the entry of new participants. For this, we needed to open access to existing infrastructure, which belonged to Pemex. This was not the best option for Pemex—they had invested in the infrastructure and they did not want to share. We did not force them, but encouraged Pemex to be more open and regulated that transition. Also, in the case of Pemex, they have a different fiscal regime. We are trying to avoid overregulation in Pemex. At the same time, we’re trying to encourage them to be transparent and accountable on their procurement processes, because it’s not really transparent at the moment.

What is the oversight structure for Mexico’s extractive sector?

We don’t have international measures such as the Extractive Industries Transparency Initiative, but Mexico has recently been accepted into the International Energy Agency, which is an important step toward benchmarking. Recently, we submitted our candidature for the EITI, so it’s on track. Right now we have auditing, but it’s not a true measure as it is based on self-auditing so it’s not really reliable and we need a real benchmark. We need to move toward independent third-party audits.

You have an important role advising the energy secretary. Are there any lessons that you might take back to Mexico from the course here at Blavatnik in Oxford?

Many, many, many lessons! I see many similarities with mineral extraction in African countries, particularly in the way they have approached local communities. In my case, key lessons I will take back include the mechanisms you can use to facilitate communication, including utilizing and strengthening institutions to develop a relationship with citizens. There are other areas too, but I think because of the moment Mexico is in and because of the fact that we failed previously to build a positive relationship with communities, I have found it really useful to learn about other countries’ experiences in this regard. I also found the Colombian example of using subcontracts to legalize illegal mining very interesting. Similar schemes with the same principles are also used in countries such as Ghana and Guinea. In Mexico, we also need to include illegal activities in order to build a more complete picture.

This interview has been edited for length and clarity.