Mexico reforms may help raise energy transparency bar, speakers say

Mexico’s energy system reforms could help set a new transparency and accountability standard if they are implemented aggressively and executed well, speakers suggested at a Jan. 24 Carnegie Endowment for International Peace forum. “Transparency disclosures on their own are essential, but there also needs to be accountability. The rule of law also is essential,” observed Natural Resource Governance Institute (NRGI) Pres. Daniel Kaufmann.

His remarks came a week after NRGI released a report, “International Practices for Transparency Management: Recommendations for the National Hydrocarbons Commission (CNH) of the Government of the United Mexican States.” It outlined steps the commission could take to build public trust, increase accountability, and improve policy administration.

“There’s disclosure already, but it’s very static. Trust needs to be built with other stakeholders,” Kaufmann said. “Citizens should be able to access all aspects of petroleum policies, which requires close cooperation of all agencies. The information should fit different audiences’ needs. It has to be universal, from government through universities to the public.”

A second speaker, Principal Deputy Assistant US Sec. of State for Energy Resources Mary B. Warlick, said, “Mexico should be congratulated for taking some very tough steps in fossil fuels. This could lead to more responsible consumption, which will put companies’ revenues on a steadier base and encourage more investment.”

There will need to be long-term commitments to create a regulatory environment that has clear rules that investors can count on, she noted. “Initial steps are important. The extent to which investors and the public can see resources are being allocated fairly and transparently matters. They need to create confidence that leads to growing investment and, ultimately, benefits for the Mexican people,” Warlick said.

Transparency beyond E&P

CNH President Commissioner Juan Carlos Zepeda, the third speaker, said Mexico’s government needs to bring transparency not only to exploration and production contracts it awards, but also to entitlements which may accrue to national oil company Petroleos Mexicanos. “We have very little information about this. We are pushing Pemex to the same standard,” he said.

Mexico and other resource-rich countries also should pursue objectives under the Extractive Industries Transparency Initiative (EITI) that provide benefits for their citizens and not just to companies’ shareholders, he continued. NRGI’s report has several good recommendations, Zepeda said, adding, “The challenge is to keep the commitment, maintain the pace, and deliver on time. We are working on meeting this challenge. Everything is within reach.”

“Much more information is needed,” said Kaufmann. “Let’s not underestimate [non-government organizations’] ability to demand and process it. Granted, many important gains have been made globally in transparency, but we’re just getting started on oil contracts.”

Pressure in the US to weaken the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act may be a sign that industrialized nations which have led adoption of financial transparency reforms until now could lose momentum and be overtaken by countries like Mexico which are just getting started, he warned.

“There are political cycles,” said Kaufmann. “Many countries are facing challenges. Over 20 years of monitoring governments’ effectiveness, we have found many emerging economies are closed to achieving the gold standard of managing economic growth. Budget and procurement transparency have been essential. It’s an enormous learning curve to overcome a cult of mismanagement.”

Zepeda said that CNH is in charge of contracts’ administration, but payments are transparent because they go directly to the Mexican Petroleum Trust Fund where they are displayed on its website. “We are committed to finding and using best practices in our energy reforms,” he said. “Being one of the last countries to open its oil industry to the private sector gives Mexico a chance to learn from everyone else.”

Contact Nick Snow at nicks@pennwell.com.

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