TY - JOUR
AU1 - Marmolejo-Cervantes,, Miguel
AU2 - Soliman Hunter,, Tina
AB - Abstract When extracting petroleum, a constitutional goal for the Mexican state is to optimize income for the state and to contribute to the long-term development of Mexico. In order to achieve this, Mexico has undergone extreme institutional and legal reforms, opening up fields for private participants, encouraging investment and reforming the governance framework. This article analyses the post-reform changes in light of Nelson’s criteria of state intervention, concluding that while Mexico has shifted from an autocratic form of participatory intervention to a form akin to that of Norway, there are further reforms necessary in order for the development of Mexico’s petroleum resources to achieve the goals of optimizing income and contributing to the long-term development of the Mexico. Such reforms include legislative reform of the Hydrocarbons Law 2014 to include mandatory field optimization, akin to section 4-1 of the Norwegian Petroleum Activities Act, and a legal requirement for development to aid the Mexican industrial sector and stimulate industrial and economic development, which will significantly contribute to the long-term development of the Mexican nation. Furthermore, the article concludes that although the current Mexican governance framework is capable of delivering the goals of optimization of revenue and long-term development of Mexico, the success will depend on political stability, consensus and a reduction in corruption, which present major challenges to Mexico. 1. INTRODUCTION When it comes to petroleum resources, whether they are onshore or offshore, the State is a multirole actor. The State is the owner of the resource, regulator of the development of the resource, recipient of financial windfall and, in many instances, the owner of an oil company that develops the resource. Such a breadth and depth of government involvement inevitably leads to conflict of interest, and can leave such development open to abuse by corrupt agents and agencies. For some states, conflict is minimized by maintaining as minimal role as possible in the regulation and participation of petroleum exploitation. For others, they regulate and participate in the activities. In any case, it is critical that a state establishes a framework that provides for the development of the resources in a manner that reduces actual or perceived corrupt practices to ensure the resources are developed in a manner that meets the institutional objectives, and provides the best possible return to the people of that state. In 2013, the Mexican Government undertook a reform of the petroleum sector, the likes of which had never been seen before. Certainly there had been previous changes in 20081; however, this was a shift of seismic proportions. Not only did the reform alter the regulatory structure of the upstream petroleum sector, but it also struck at the very heart of the system, altering the role and structure of Petróleos Mexicanos (‘Pemex’), the Mexican national oil company (NOC). The driver for the reform came from the very highest of legal sources, the Mexican Constitution, which was altered to allow state-owned petroleum resources to be developed by international oil companies. Such reforms meant that for the first time in over 75 years, the Mexican petroleum sector allowed external, non-state participants in the sector. Inevitably, such reform raises questions regarding the role of the Mexican state as both regulator and participant in a new era, one where the state is required under Article 27 of the Constitution to maximize revenue and develop petroleum resources for the good of the Mexican people. Such a constitutional requirement raises critical questions, which is the focus of this article: what is the role of the Mexican state in the petroleum sector after the 2013 reforms? Will such a role enable the state to fulfill its constitutional obligation to maximize revenue and develop the petroleum for the benefit of the Mexican people? In answering these questions, it is necessary to consider the role of the Mexican state in petroleum extraction activities. As such, this article will commence with a consideration of the role of a state in petroleum activities, drawing on the seminal classification of state involvement laid down by Nelson in 1991.2 It will then consider the role of the Mexican state in the pre- and post-reform eras, comparing and contrasting the role and analysis of how state control of the access to petroleum and the regulation of petroleum operations, has changed as a result of the reform. Necessarily, this analysis will focus on the governance and regulatory frameworks in the pre- and post-reform eras. Analysing the new governance framework, this article will consider whether changes in the role of the Mexican state in the post-reform era and governance arrangements will enable the constitutional objectives to be fulfilled. 2. RESEARCH QUESTION, SCOPE AND METHODOLOGY This article examines the reforms that occurred in the Mexican energy sector in 2013. Although the reforms encompassed both the petroleum and the electricity sectors, this article is confined to the reforms made to the upstream petroleum sector—that is, the exploration for and extraction of Mexican petroleum resources. It is the hypothesis of this article that is possible for a state to be a multirole actor in the extraction of petroleum for wealth optimization and long-term benefit if a petroleum governance framework that encompasses checks and balances has been established. Such a hypothesis, therefore, raises the fundamental research question to be addressed in this article: do the post-2013 energy reforms in Mexico, and resultant petroleum governance framework for petroleum extraction, fulfil the constitutional objective of maximizing the economic return and contributing to the long-term development of the Mexican state? In order to address this research question, this article examines a number of issues, namely: the major challenges to the Mexican petroleum sector prior to the 2013 energy reform (‘the energy reform’); the constitutional objectives regarding petroleum extraction, revenue maximization and utilization before and after the energy reform; the alteration of the governance framework under the 2013 reforms; and the extent to which the current governance framework maximizes extraction and revenue, and contribute to the long-term development of Mexico. Although research into the Mexican energy sector reforms is common,3 the contribution of this article to the wider study of Mexican energy reforms is that it considers not only the reforms themselves, providing a comparison between the pre- and post-reform era, but also whether the governance reforms will enable the Mexican state to fulfil the objectives that set down under Article 27 of the Mexican Constitution. As such, it considers not only what the law is, but also socio-legal content of what the law’s impact is on Mexican society. To study the existing governance and regulatory frameworks, the primary methodology utilized in this study is doctrinal research. Doctrine is defined as ‘a synthesis of rules, principles, norms interpretive guidelines and values. It explains, makes coherent, or justified a segment of the law as part of a larger system of law. Doctrines can be abstract, binding or non-binding’.4 Within the confines of this analysis, doctrinal research is limited to the rules, principles, policy and norms related to petroleum exploitation5 in Mexico. It also utilizes socio-legal resources methodology, analyses the law and its relationship with wider society in order to determine whether such legal reforms have provided the social outcomes required in the Constitution. Finally, as a tool to analyse the relative success or failure of the Mexican reforms, comparative functional methodology is utilized to compare the regulatory functions of the Mexican state with that of Norway, long hailed as successful in maximizing wealth and developing the resources for the good of the Mexican people. 3. THE ROLE OF THE STATE IN PETROLEUM EXTRACTION A regulatory challenge for a state, fundamental for the design and implementation of a petroleum governance framework, is how much control (defined as ‘intervention’ by Nelsen) should be exerted by the state during the exploitation of the petroleum.6 Such state control ranges from minimal intervention, where the state undertakes little more than a referee role, to that of participatory intervention, where the state itself enters into the petroleum industry. Whichever level of intervention is chosen, the difficulty of any state is to determine which level of intervention is suitable for that state. Such a choice will depend on the outcomes the state is seeking to achieve at any given time. It is also likely that the level of intervention will alter over time in response to the changing economic, commercial, technical and political factors that a state encounters. Under minimal intervention, the state assumes a role as referee in the exploitation of the resources, primarily engaging in the enforcement of laws regulating the protection of workers and the environment, as well as regulating the distribution of offshore provinces to oil companies.7 Participant oil companies are left to exert control over field development plans, equipment purchases, production levels and profits.8 In this level of intervention, the state allows the industry to regulate its activities, so long as the laws relating to petroleum access sand operations are adhered to, and conflict among the companies is minimal and competition is fair.9 Under this type of state control, the goals of the oil companies are usually paramount, with the state content to be guided by the oil companies’ goals and knowledge. Such type of intervention certainly does not apply to Mexico in accordance to the energy reform since the state is not acting as a mere referee and oil companies are not regulated by themselves but instead regulated heavily by the state. This particularly type of intervention generally assumes that there are only international oil companies operating within the jurisdiction, and not a NOC. It is this form of regulation that currently applied in Australia. Under regulatory intervention, the state assumes the role of overseer of petroleum activities.10 Rather than being content to referee from the sidelines, the state is deeply involved in regulating day-to-day petroleum operations, without actually engaging in those operations. Such state intervention occurs through the creation, enforcement and monitoring of strict regulations. Under such intervention, the state scrutinizes and approves almost every action taken by the oil companies, in order to balance the interests of the state with the need to maintain the presence of oil companies within the jurisdiction. It was the form of regulation that was adopted by the UK in the early exploitation of petroleum resources in the North Sea, particularly in the 1960s and 1970s.11 The undertaking of participatory intervention by a state signifies a state entering into the petroleum industry as a shareholder and active participant.12 By adopting a policy of participatory intervention, the state not only continues with its duties as a regulator, as set out in regulatory participation, but also assumes the role of participant.13 As noted by Nelsen, participatory intervention enables the state to acquire greater control of petroleum activities in its jurisdiction, as well as gaining expertise and inside information, exerting regulatory influence on offshore activities from both inside and out and adding to taxation revenues by turning a profit in its operations.14 By undertaking participatory intervention, a state has the ability to maximize the extraction of petroleum, thereby maximizing economic return. The Norwegian approach has been one of participatory interventions since production activities commenced in the early 1970s, with a view to maximize economic return to the Norwegian state and provide benefits to Norwegian society through participation both with a NOC and through direct financial participation.15 For Mexico, such participatory interventions occur since 1938 with Pemex undertaking all activities, and in the post-reform era with the participation of the NOC Pemex, which is entitled to carry out petroleum extraction activities in terms of the titles granted under Round ‘0’.16 This contrasts with participatory intervention in Norway, where such participatory intervention as a strategy of state governance is linked to its socio-political identity as a labour-dominated ‘social–democratic state’ that plays an active role in the economy as a national economic planner, an allocator of capital, a regulator of foreign investment, an owner of large and important segments of the economy and a facilitator of corporatist decision-making.17 4. MAJOR CHALLENGES IN THE MEXICAN UPSTREAM PETROLEUM SECTOR PRIOR TO REFORM The petroleum industry has a long history in Mexico, operating for over 100 years. During that period, a number of struggles have occurred between government and companies, particularly involving the NOC Pemex.18 In order to understand current petroleum policy in Mexico, it is important to consider the evolution of petroleum and the major periods of development,19 analysing not only the chronological development and major periods of Mexico’s petroleum industry but also the challenges and policy objectives of each period, which has ranged from the battle for control over the petroleum industry and its revenues, the establishment of a national monopoly with a concomitant ‘super power’ political structure to carry out the petroleum industry and wealth redistribution and the shift from being a net exporting country to a net oil importer with the decline of the Cantarell field.20 Until 2007, Mexico was a next exporter, relying on the giant offshore Cantarell field, which at its peak in 2000 produced more than 2.1 million barrels per day (bpd). However, production has declined rapidly since 2004, falling to around 400,000 bpd since 2012. These phases of oil production in Mexico’s history have been characterized by the level of state control over the development of the oil fields. Since 1938, the state has played the role of both the regulator and the sole participant in the development of the petroleum resources. In this role, the Mexican state sought to regulate the activities as well as maximize the economic return as participant through Pemex. Today, there is a shift in the role of the state in the development of Mexico’s petroleum reserves, with Pemex becoming a non-monopolistic productive state company whose mission is to accomplish commercial goals, within a free market that is characterized by microeconomics, complex financial structures, risk management, research and development (hi-tech) long-term policies and private investment allocation among others. Before the 2013 energy reform,21 Mexico’s petroleum resources were governed by Articles 25, 27 and 28 of the Constitution that granted to Pemex the exclusive right for exploration and extraction (E&E) of petroleum. The Constitution required Pemex’s activities and performance in the world market be orientated in accordance with national interests, including energy security, sustainability of the hydrocarbon annual extraction platform, market diversification, most added value to its products, development of the national industry and environmental protection, and required these criteria to be incorporated into the National Energy Strategy.22 Interestingly, these constitutional requirements can be read as the same drivers for the new energy reform, and could have been realized with the giant Cantarell field. However, a failure to implement an optimal management strategy, failure to take into account the conditions of supply and demand in the international oil market in the 1990s and short-term government policies meant a lost opportunity to optimize income during this period.23 By the end of the first decade of the 21st century, it was clear that there were major challenges facing both the Mexican upstream petroleum sector in general and, more particularly, Pemex as an oil company. As noted by Cuervo, access to additional reserves had become both difficult and expensive, and several fields straddle the US/Mexico maritime boundary, requiring cooperative agreements for development.24 Perhaps, the greatest challenge to the Mexican petroleum industry was the monopoly that Pemex and the Mexican state maintained over falling hydrocarbon production from fields (especially from the Cantarell field) requiring serious investment and enhanced oil recovery technological development. Therefore, a number of drivers for reform had arisen, particularly related to the state of the Mexican economy, the political situation, the precarious financial situation of Pemex and the need for international investment in the petroleum industry. According to Lajous, a central challenge to Mexico’s architecture was Pemex’s disappointing performance and the link between its governance structure and processes.25 Lajous expressed the need for urgent reform of the petroleum sector given the exceptionalism of the Mexican oil industry, which posed complex challenges for designing sectorial policies.26 5. CONSTITUTIONAL AND ENERGY REFORM: A NEW START Prior to the 2013 energy reform, regarding oil and gas resources, Article 25 of the Mexican Constitution established the dominance and exclusivity of Pemex, and Article 27 of the Mexican Constitution provided that ‘no concessions or contracts shall be granted … and the nation shall carry out the exploitation of these substances under the terms set forth in the respective regulatory law’. Competing the trinity, Article 28 of the Constitution defined petroleum as a ‘strategic area’, which falls under the control of the state by virtue of Article 25 of the Mexican Constitution which states that ‘the public sector shall exclusively be in charge of those strategic areas’. The effect of these articles of the Constitution and the Hydrocarbons Law of 1958 (the ‘relevant regulatory law’) was to grant Pemex sole rights to access, explore for and produce petroleum both onshore and offshore in Mexico under strict government control. In this instance, Pemex did not act as a separate commercial entity, but rather as a commercial arm of the government. It had little financial or procurement autonomy, and required government approval for much of its activities. By the first decade of the 21st century, it was clear that there was a need to review and reform the roles and responsibilities of Pemex and state agencies in petroleum operations and regulation due to the monopolistic nature of Pemex activities. As noted in Section 3, an arrangement where the state not only regulates but also participates in the exploitation of petroleum is common, and characterized by Nelson as participatory intervention.27 However, the Mexican implementation of participatory intervention differed markedly to that of Norway,28 which was characterized by open markets, private participants alongside the state oil company Statoil and state regulation through independent state bodies. Although the state participated in and exerted a high degree of control over the exploitation of petroleum in Norway, the functions of the state were separated, and private participants were seen as essential for the healthy development and functioning of the petroleum industry and resources. This differs markedly to the Mexican version of participatory intervention, which was characterized by a closed monopoly, with petroleum resources and activities reserved exclusively to Pemex. Indeed, the version of ‘intervention’ exhibited by Mexico during this period extends beyond participatory intervention, and more characteristic of a fourth, and new form of intervention, that of monopolistic intervention where the state not only participates in petroleum activities but also controls and dominates all aspects of petroleum exploitation, squeezing out any form of private participation and centralizing all control into the hands of the Ministry for Energy (SENER) and Pemex. Initial attempts for reform occurred with the 2008 reform of Pemex. Under the 2008 bill, Pemex was not privatized, as it was seen as representative of the nation’s petroleum wealth. The position of Pemex was very much Jekyll and Hyde: on the one hand, it was seen as the sacred cow, a symbol of immense and symbolic national importance, deeply rooted in Mexico’s sovereignty and independence.29 On the other hand, Pemex is the cash cow, providing over one third of Mexico’s federal revenue.30 These two roles became increasingly difficult to reconcile, leading to a need for reform. However, given the symbolic national importance of Pemex, privatization was off the table. Instead, the government and legislators ‘tinkered around the edges’, introducing three new laws relating to the operation of Pemex.31 The aim of the 2008 energy reform was to strengthen the governance of Pemex and to enable greater flexibility in its operations, budgeting and contracting.32 By creating a customized regulatory regime in which Pemex was able to exert greater control over its contracting and procurement, as well as budgetary and financial autonomy,33 Pemex became more commercial-like and less like a government agency. However, although seeking to create a more flexible and nimble Pemex, the constraints on the role and operation of Pemex remained as a result of the requirements set out under the existing Mexican Constitution and the 1958 Petroleum Law,34 limiting the capacity of Pemex to form partnerships or business associations. According to Lajous, the centralized administrative regulation of Pemex is the primary cause of its poor business performance, coupled with laws that were ‘drowning Pemex in a bureaucratic morass’.35 It was these constraints that in part set in motion the move towards greater energy reform in the second decade of the 21st century. The 2008 reforms also established the National Hydrocarbon Commission (CNH), an independent federal regulatory entity, to supervise upstream hydrocarbon exploration and production activities, as well as the downstream processing activities. The idea of establishing the CNH was to optimize the management of hydrocarbon reserves and resources in order to create the greatest possible economic value for the benefit of all Mexicans.36 The reforms were needed given that the poor performance of Pemex was seen by some to be directly linked to the petroleum governance structure. They created a petroleum governance framework that continued to be dominated by Pemex and SENER, where no independence of regulator occurred, as seen in the governance framework in Figure 1. Upon its establishment, a strong relationship was created between CNH and Pemex. In many ways, CNH acted as a de facto ‘boss’ of Pemex, undertaking the technical assessments for Pemex, setting guidelines for its activities and undertaking Audit of Pemex. This cozy relationship demonstrated the vertical relationship between government (in the form of the regulator) and company. Figure 1. View largeDownload slide Structure of petroleum regulatory bodies and their responsibilities after the 2008 petroleum reform and prior to the 2013 energy reform. Source: Compiled by Authors. Figure 1. View largeDownload slide Structure of petroleum regulatory bodies and their responsibilities after the 2008 petroleum reform and prior to the 2013 energy reform. Source: Compiled by Authors. Aside from a regulatory structure dominated by SENER and with little regulatory independence, as well as the dominance of Pemex, the economic climate, debt load of Pemex and drastically falling production demonstrated a need for further energy reform. Steps were taken in 2012 when President Enrique Peña Nieto signed the ‘Pact for Mexico’ (‘the Pact’),37 an agreement with the major political parties to jointly move forward with ‘the most sweeping reform agenda in two decades’.38 The Pact had three central tenets: strengthening the Mexican state, political and economic democratization and the application and expansion of social rights. It comprised 95 initiatives fall within five categories, including democratic governance, transparency and accountability, rights and liberties, security and justice and economic growth and employment.39 Further steps towards reform occurred when the Institutional Revolutionary Party (PRI) amended its foundational documents, in order to break the Pemex and CFE monopolies, boost private investment, increase productivity and extend Pemex’s market share.40 The ‘Pact’ was crucial to activate the energy reform, since it had gained political consensus, something that the administration of former presidents Fox (2000–06) and Calderón (2006–12) had both failed to do due to a lack of political consensus. Such political consensus is essential in developing lasting, meaningful petroleum policy, as demonstrated by the development of the principles for petroleum development by the Norwegian Parliament in 1971. Led by the labour government of the day under the guidance of Jens Evansen, political consensus was reached on a set of principles to guide the development of 10 principles that guided, and continue to guide, the development of Norwegian petroleum. Known as the ‘Ten Oil Commandments’,41 these principles were the fundamental basis of Norwegian policy, and imbued in the petroleum law.42 The energy reform fell under a number of arms of the Pact, particularly commitments 54–6043 with energy and fiscal reforms seeking to transform Pemex into a full commercial entity and boost its capacity to compete globally. Furthermore, competition in refining, petrochemicals and hydrocarbon transport was to be increased, an emphasis placed on modernizing privatization and the authority of the CNH, as regulator extended and strengthened. The International Energy Agency (IEA) recognized the historic nature of these reforms, describing it as one of the most ambitious energy sector reforms in decades worldwide.44 Overview of the reform The need for reform was recognized and the bold move taken to undertake drastic reform. At the centre of the reform, there is the opening up of offshore areas for development. Although privatization of Pemex was still off the table, the reforms have been sweeping, both in terms of institutional as well as legislative. Crucially, under the reform, Mexico’s hydrocarbon resources remain property of the Mexican state. The key principles of the energy reform included reaffirming the constitutional principle of the state ownership over subsoil resources, free competition among economic actors in the sector, the strengthening of regulatory agencies and a focus on transparency and accountability in the new contracts.45 The Mexican Congress approved the reforms, which were also sent to states legislatures for approval and on 20 December 2013, the energy reform decree was issued. As a result of the energy reform, two significant amendments were made to Articles 25, 27 and 28 of the Mexican Constitution, which had so far reserved large parts of the energy sector activities to the state. Article 2546 incorporates the concept of sustainability into the economic rectory of the state.47 Article 2748 includes explicitly the fundamental objective for the upstream sector: ‘to obtain revenue and contribute to the long-term development of the Nation’. This is consistent with the previous non-written fiscal-budgetary rule of maximization of revenues, and now constitutionally enshrines the principle. Article 27 also enables private investments to foster petroleum exploitation: ‘the state will explore and exploit oil and other hydrocarbons through assignments given to productive state-owned companies, or through contracts to be executed with them or private parties, in accordance with the law’.49 One aspect not changed was ownership of petroleum: ‘subsoil hydrocarbons will remain property of the nation and will be expressed as such in the allocation and contracts by themselves through contracts’50 awarded by bidding process (Rounds 1, 2, 3 and so on) as well as by granting direct entitlements to state productive enterprises (Pemex, Round ‘0’) for exploitation too, enabling partnerships with private investments. Finally, Article 2851 establishes an economic strategic sector petroleum exploitation as stated in the new Article 27, establishes a wealth fund and enhances the role of CNH. Twenty-one transitory articles to assist in the reform of the sector were also implemented,52 providing clear and concrete substantive criteria and specific rules for the successful implementation of the regulatory legal framework. For instance, to protect investments and ensure that Mexico will remain proprietor of all subterraneous hydrocarbons; however, private investors will be able to book reserves. Specific language to this effect is contained in transitory Article 5: The state productive companies … as well as private entities … ‘may report for accounting and financial purposes the corresponding allocation’ … and expected benefits, as long as it is mentioned in the allocations or contracts that the … hydrocarbons in the subsoil are owned by the nation.53 According to Ocha, the energy reform effectively implements the free-market model in Mexico due to the liberalization of the market to private investment and competition.54 This free-market approach is akin to other participatory intervention states, such as Norway. Petroleum governance in the post-reform era The legal and governance reforms undertaken by the Mexican government were wide and sweeping, involving changes to regulatory institutions, the legal framework and governance arrangement, all together creating a new governance model for petroleum exploitation. At an institutional level, there were a number of significant changes, as demonstrated in Figure 2. The role and sphere of influence of SENER was curtailed, and the role of the CNH expanded to that of an independent regulator. The role of the National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA) has expanded, with it also becoming an independent regulator at arm’s length from SENER. The Constitution establishes the regulatory body CNH’s authority, which has technical autonomy aligned with the Supreme Court of Justice recent developed new doctrine named ‘regulator state’. This enables the CNH flexibility and adaptability to regulate petroleum extraction activities so long as it implements scientific and technical criteria through resolutions, administrative general provisions, technical standards, guidelines, handbooks and Mexican official norms.55 Figure 2. View largeDownload slide Institutional changes under the 2013 energy reform, providing an overview of the agencies and their sphere of control. Source: Compiled by Authors. Figure 2. View largeDownload slide Institutional changes under the 2013 energy reform, providing an overview of the agencies and their sphere of control. Source: Compiled by Authors. A new upstream legal framework was established with the Hydrocarbon Law 2014 (which regulates all aspects of petroleum activity), the lynchpin of the legal framework. In relation to the upstream sector, which is the focus of this article, the Hydrocarbons Law establishes the contractual framework and sets out the contractual arrangements. This primary legislation is supported by a number of other laws, an overview of which is provided in Figure 3. Figure 3. View largeDownload slide Legislative changes under the 2013 energy reform, providing an overview of the suite of laws and their application as part of the energy reform. Source: Compiled by Authors. Figure 3. View largeDownload slide Legislative changes under the 2013 energy reform, providing an overview of the suite of laws and their application as part of the energy reform. Source: Compiled by Authors. As a consequence of the energy reforms and the concomitant legal reforms, a new regulatory structure was established. Of note in the reform are three major changes to the governance arrangement. First, the new petroleum governance framework enables the state to establish and grant contracts for exploration and production to private foreign entities, thereby attracting foreign investment and technology (especially for deep-water developments). Under the new Hydrocarbon Law (2014), several different contract types are possible, corresponding to different risks, and designed to reverse the declining in oil production particularly from the giant Cantarell oil field.56 The contracts are defined in SENER’s five-year plan and awarded through a bidding process by the CNH. Secondly, the role of the regulatory agency ASEA has been considerably enhanced. No longer under the control of SENER, ASEA is now autonomous body responsible for health, safety and environment for all petroleum activities (upstream and downstream). Thirdly, the Central Bank has a critical role in the management of revenue, particularly the management, investment and savings related to the new ‘Mexican Oil Fund for Development’. The new regulatory arrangements, including the relationship between the regulatory agencies, are illustrated in Figure 4. Figure 4. View largeDownload slide Structure of petroleum regulatory bodies and their responsibilities after the 2013 energy reform. Source: Compiled by Authors. Figure 4. View largeDownload slide Structure of petroleum regulatory bodies and their responsibilities after the 2013 energy reform. Source: Compiled by Authors. Figure 5. View largeDownload slide SHCP and public credit control over entitlements governance system. Source: Compiled by Authors. Figure 5. View largeDownload slide SHCP and public credit control over entitlements governance system. Source: Compiled by Authors. Figure 6. View largeDownload slide SHCP and public credit control over contracts governance system. Source: Compiled by Authors. Figure 6. View largeDownload slide SHCP and public credit control over contracts governance system. Source: Compiled by Authors. Given the changes in the regulatory and legal framework, it is possible to present an overview of the differences in the pre- and post-reform regimes. As seen in Table 1, there have been dramatic changes in the roles and responsibilities of SENER, CNH, the Ministry of Natural Environment and Resources (SEMARNAT), National Agency for Industrial Safety and Environmental Protection of the Hydrocarbons Sector (ASEA), Ministry of Finance (SHCP) and the Central Bank of Mexico. What is clear from the analysis, as well as from the regulatory structures outlines in Figures 1 and 4 is that the period prior to the 2013 energy reform was characterized by a dominance of SENER and CNH, with the latter acting a ‘guardian’ over Pemex. There was little independence between agencies, and the state was all encompassing through SENER. The reform saw a shift to a governance structure akin to that of many other petroleum producing jurisdictions. Indeed, the regulatory framework is very similar to that of Norway, characterized by independent and separate regulatory bodies for access/field development and health, safety and environment. In addition, both Norway and Mexico have an Oil Fund that is managed by the state’s Central Bank, with the goal of building wealth for the people of the state.57 Table 1. Comparison of the roles of Mexico’s regulatory institutions prior to and after the 2013 energy reform (compiled by authors) Authority Prior to 2013 reform (and after 2008 reform) After 2013 energy reform SENER Responsible for the Energy Public Policy Responsible to produce regulation to the petroleum industry Entitled to grant assigments (oil fields) to Pemex exclusively for E&P activities Responsible for the Energy Public Policy Selection of oil fields for bidding Issue the five-year plan for biddings Set the terms and conditions for E&E contracts for both Pemex and private participants Grants and cancels assigments to Pemex in Round 0 Establishes the type of contract (licence, services, production sharing and profit sharing) to be awarded CNH Dependent to the Ministry of Energy To provide technical assistance to develop the national hydrocarbon policy To establish technical guidelines for E&E activites for Pemex Technical assessments to exploration and development plans related to E&E activites prior the assigments granted to the Ministry of Energy To set guidelines to Pemex to collect information about E&E activities Auditing Pemex and if default is found, to notify to the Ministry of Energy Semi-independent (not autonomous) Body’s existance and role as regulator guaranteed by Constitution Able to produce binding technical standards Proposes oil fields for bidding Proposes the five-year plan for biddings Executes (signs) the E&E contract awarded Assessments and oversees to exploration and development plans related to E&E contracts SEMARNAT Issues along with the Ministry of Energy criterion for sustainable development of petroleum activities Functions transferred to a specialized entity (+ plus extended functions) to ASEA ASEA Handled by the SEMARNAT; not as specilized as the ASEA in petroleum activities Constitutional regulator entity; able to produce binding regulation equivalent to law, if technical only Specialized environmental entity for petroleum activities SHCP Takes and manages oil revenues derived from contracts granted to Pemex Manages the oil fund for stabilization and development: the oil revenues stabilization fund created as a policy tool for risk managmeent associated with petroleum revenue by the Mexican federal government; it is particularly used for stabilizing economic changes associated with oil prices and revenue Establishes the financial consideration for each contract type awarded Issues an opinion about the type of contract to be used in each round Sets the percentages when awarding contracts Auditing (booking and financials) of contracts and assignments Supervises payments of all financial considerations Central Bank of Mexico Handled by the Ministry of Finance; it was not as expansive as it is current fund Takes and manages oil revenues derived from E&E contracts and assigments Manages financial aspects of the E&E contracts Transfers each year resources to different funds as well as to the federal budget up to 4.7% of the Gross Domestic Product Sets and manages long-term savings reserve Authority Prior to 2013 reform (and after 2008 reform) After 2013 energy reform SENER Responsible for the Energy Public Policy Responsible to produce regulation to the petroleum industry Entitled to grant assigments (oil fields) to Pemex exclusively for E&P activities Responsible for the Energy Public Policy Selection of oil fields for bidding Issue the five-year plan for biddings Set the terms and conditions for E&E contracts for both Pemex and private participants Grants and cancels assigments to Pemex in Round 0 Establishes the type of contract (licence, services, production sharing and profit sharing) to be awarded CNH Dependent to the Ministry of Energy To provide technical assistance to develop the national hydrocarbon policy To establish technical guidelines for E&E activites for Pemex Technical assessments to exploration and development plans related to E&E activites prior the assigments granted to the Ministry of Energy To set guidelines to Pemex to collect information about E&E activities Auditing Pemex and if default is found, to notify to the Ministry of Energy Semi-independent (not autonomous) Body’s existance and role as regulator guaranteed by Constitution Able to produce binding technical standards Proposes oil fields for bidding Proposes the five-year plan for biddings Executes (signs) the E&E contract awarded Assessments and oversees to exploration and development plans related to E&E contracts SEMARNAT Issues along with the Ministry of Energy criterion for sustainable development of petroleum activities Functions transferred to a specialized entity (+ plus extended functions) to ASEA ASEA Handled by the SEMARNAT; not as specilized as the ASEA in petroleum activities Constitutional regulator entity; able to produce binding regulation equivalent to law, if technical only Specialized environmental entity for petroleum activities SHCP Takes and manages oil revenues derived from contracts granted to Pemex Manages the oil fund for stabilization and development: the oil revenues stabilization fund created as a policy tool for risk managmeent associated with petroleum revenue by the Mexican federal government; it is particularly used for stabilizing economic changes associated with oil prices and revenue Establishes the financial consideration for each contract type awarded Issues an opinion about the type of contract to be used in each round Sets the percentages when awarding contracts Auditing (booking and financials) of contracts and assignments Supervises payments of all financial considerations Central Bank of Mexico Handled by the Ministry of Finance; it was not as expansive as it is current fund Takes and manages oil revenues derived from E&E contracts and assigments Manages financial aspects of the E&E contracts Transfers each year resources to different funds as well as to the federal budget up to 4.7% of the Gross Domestic Product Sets and manages long-term savings reserve View Large Table 1. Comparison of the roles of Mexico’s regulatory institutions prior to and after the 2013 energy reform (compiled by authors) Authority Prior to 2013 reform (and after 2008 reform) After 2013 energy reform SENER Responsible for the Energy Public Policy Responsible to produce regulation to the petroleum industry Entitled to grant assigments (oil fields) to Pemex exclusively for E&P activities Responsible for the Energy Public Policy Selection of oil fields for bidding Issue the five-year plan for biddings Set the terms and conditions for E&E contracts for both Pemex and private participants Grants and cancels assigments to Pemex in Round 0 Establishes the type of contract (licence, services, production sharing and profit sharing) to be awarded CNH Dependent to the Ministry of Energy To provide technical assistance to develop the national hydrocarbon policy To establish technical guidelines for E&E activites for Pemex Technical assessments to exploration and development plans related to E&E activites prior the assigments granted to the Ministry of Energy To set guidelines to Pemex to collect information about E&E activities Auditing Pemex and if default is found, to notify to the Ministry of Energy Semi-independent (not autonomous) Body’s existance and role as regulator guaranteed by Constitution Able to produce binding technical standards Proposes oil fields for bidding Proposes the five-year plan for biddings Executes (signs) the E&E contract awarded Assessments and oversees to exploration and development plans related to E&E contracts SEMARNAT Issues along with the Ministry of Energy criterion for sustainable development of petroleum activities Functions transferred to a specialized entity (+ plus extended functions) to ASEA ASEA Handled by the SEMARNAT; not as specilized as the ASEA in petroleum activities Constitutional regulator entity; able to produce binding regulation equivalent to law, if technical only Specialized environmental entity for petroleum activities SHCP Takes and manages oil revenues derived from contracts granted to Pemex Manages the oil fund for stabilization and development: the oil revenues stabilization fund created as a policy tool for risk managmeent associated with petroleum revenue by the Mexican federal government; it is particularly used for stabilizing economic changes associated with oil prices and revenue Establishes the financial consideration for each contract type awarded Issues an opinion about the type of contract to be used in each round Sets the percentages when awarding contracts Auditing (booking and financials) of contracts and assignments Supervises payments of all financial considerations Central Bank of Mexico Handled by the Ministry of Finance; it was not as expansive as it is current fund Takes and manages oil revenues derived from E&E contracts and assigments Manages financial aspects of the E&E contracts Transfers each year resources to different funds as well as to the federal budget up to 4.7% of the Gross Domestic Product Sets and manages long-term savings reserve Authority Prior to 2013 reform (and after 2008 reform) After 2013 energy reform SENER Responsible for the Energy Public Policy Responsible to produce regulation to the petroleum industry Entitled to grant assigments (oil fields) to Pemex exclusively for E&P activities Responsible for the Energy Public Policy Selection of oil fields for bidding Issue the five-year plan for biddings Set the terms and conditions for E&E contracts for both Pemex and private participants Grants and cancels assigments to Pemex in Round 0 Establishes the type of contract (licence, services, production sharing and profit sharing) to be awarded CNH Dependent to the Ministry of Energy To provide technical assistance to develop the national hydrocarbon policy To establish technical guidelines for E&E activites for Pemex Technical assessments to exploration and development plans related to E&E activites prior the assigments granted to the Ministry of Energy To set guidelines to Pemex to collect information about E&E activities Auditing Pemex and if default is found, to notify to the Ministry of Energy Semi-independent (not autonomous) Body’s existance and role as regulator guaranteed by Constitution Able to produce binding technical standards Proposes oil fields for bidding Proposes the five-year plan for biddings Executes (signs) the E&E contract awarded Assessments and oversees to exploration and development plans related to E&E contracts SEMARNAT Issues along with the Ministry of Energy criterion for sustainable development of petroleum activities Functions transferred to a specialized entity (+ plus extended functions) to ASEA ASEA Handled by the SEMARNAT; not as specilized as the ASEA in petroleum activities Constitutional regulator entity; able to produce binding regulation equivalent to law, if technical only Specialized environmental entity for petroleum activities SHCP Takes and manages oil revenues derived from contracts granted to Pemex Manages the oil fund for stabilization and development: the oil revenues stabilization fund created as a policy tool for risk managmeent associated with petroleum revenue by the Mexican federal government; it is particularly used for stabilizing economic changes associated with oil prices and revenue Establishes the financial consideration for each contract type awarded Issues an opinion about the type of contract to be used in each round Sets the percentages when awarding contracts Auditing (booking and financials) of contracts and assignments Supervises payments of all financial considerations Central Bank of Mexico Handled by the Ministry of Finance; it was not as expansive as it is current fund Takes and manages oil revenues derived from E&E contracts and assigments Manages financial aspects of the E&E contracts Transfers each year resources to different funds as well as to the federal budget up to 4.7% of the Gross Domestic Product Sets and manages long-term savings reserve View Large On the other hand, interactions among government agencies, regulators and stakeholders can be seen and appreciated as follows; highlighting the powerful role of the SHCP and Public Credit as the main controller of the revenue system to be maximized. In his study of the reform under the political economy framework of government to governance, Ibarra-Yuñez sees the institutional changes associated with the 2013 energy reform as a transition from a government-based to governance-based framework.58 Such a transition is characterized by a shift from a centralized, vertically integrated decision-making process that dominates a government-based structure towards a governance-based structure characterized by a coordinated, horizontal, multiplayer setting where the leadership is shared.59 Such changes in governance practices can emerge as a result of various implications, such as the economic control change, shifting in the competition structure (fiscal, financial markets and technological changes) and changes in law and regulation. Ibarra-Yuñez recognizes the differences between government and governance, and proposes an extension of Brahman’s concept of governance across 7 dimensions60 to 13 dimensions. These dimensions, analysed by Ibarra-Yuñez in relation to government and governance, are presented in Table 2, along with our additional analysis of governance in the post-voting period (December 2013) and energy reform governance in Mexico. Table 2. Modified analysis of the shift from government to governance in accordance with the 13 dimensions established by Ibarra-Yuñez, with last two columns added by authors Dimension Government Governance Mexico December 2013 after voting Energy reform governance compliance Efficiency aims Subject to various levels of central objectives, non-economic Economic converging objectives on costs, output, technology and final prices Economic and commercial, additional to urgency to finance deep-water exploration and development and shale oil and gas ✓ International competitiveness No reference necessary, but social of political objectives for NOCs International referents among institutions, governments and paradigmatic NOCs Energy reform initiative contains strategies for Pemex to become modern and internationally competitive, where international markets have been lost Need to wait for secondary laws and specific regulations (2014) Security Guaranteed by state as national priority in protecting state-owned enterprises Shared by international, regional, national policies, guaranteed by the market mechanism Contained in the energy reform proposal, with referents mentioned and international partners ✓ Reference in the government and governance State and NOC Pemex only (self-reference) Petrobras, Ecopetrol, Statoil (Equinox) have been proposed, from various levels of liberalization and democratization, and shared state involvement Decided turn towards governance; not very clear if governance will adhere to international, financial and market rules Absent Competition structure, fiscal and financial regimes No competition, centralized fiscal and financial regimes Transitional to market driven, including fiscal and financial regimes Energy reform proposal contains articles to secure contracts, financial regimes, and change towards corporate fiscal regime in 10 years Need to wait for secondary laws and specific regulations (2014) Geographical context National National, international and subnational Energy reform not totally committed to international, national yes Need to wait for secondary laws and specific regulations (2014) Distribution of resources Centralized Dispersed or shared among participants Shared among participants ✓ Interests National constitutional interest driven by history or political tradition Differentiated, subject to regulatory oversight, international oversight Combined in the energy reform voted proposal, with union powers not addressed, or other powerful interests; not too clear on international oversight Absent Norms (legal and implicit) Mainly sovereignty, with strong central control, strong legal stance and distributive aim Limited sovereignty, with distributed/market control, strategic subnational and national stance and efficiency Proposal still needs to see implementation in secondary laws and rulings in 2014 Need to wait for secondary laws and specific regulations (2014) Decision-making and organization Central, hierarchical, obligatory consensus, not organizational Decentralized by strategic objectives, horizontal, self-government, market driven financial, fiscal and labour regimes Energy reform initiative call for a strong reorganization and decentralized decisions ✓ Policy implementation Centralized, shared only to directorate and unions of the enterprises, coercive Fragmented, various level of government involvement, shared with enterprise, unions and civil society Energy reform initiative change in policy implementation, given the restructuring of all the sector ✓ International scope Not important Very important Energy reform initiative only mentions Pemex to issue equity in the future, with no details Need to wait for secondary laws and specific regulations (2014) Transparency issues Not important [sic] Very important Energy reform initiative not clear on transparency Absent (corruption issues as well) Dimension Government Governance Mexico December 2013 after voting Energy reform governance compliance Efficiency aims Subject to various levels of central objectives, non-economic Economic converging objectives on costs, output, technology and final prices Economic and commercial, additional to urgency to finance deep-water exploration and development and shale oil and gas ✓ International competitiveness No reference necessary, but social of political objectives for NOCs International referents among institutions, governments and paradigmatic NOCs Energy reform initiative contains strategies for Pemex to become modern and internationally competitive, where international markets have been lost Need to wait for secondary laws and specific regulations (2014) Security Guaranteed by state as national priority in protecting state-owned enterprises Shared by international, regional, national policies, guaranteed by the market mechanism Contained in the energy reform proposal, with referents mentioned and international partners ✓ Reference in the government and governance State and NOC Pemex only (self-reference) Petrobras, Ecopetrol, Statoil (Equinox) have been proposed, from various levels of liberalization and democratization, and shared state involvement Decided turn towards governance; not very clear if governance will adhere to international, financial and market rules Absent Competition structure, fiscal and financial regimes No competition, centralized fiscal and financial regimes Transitional to market driven, including fiscal and financial regimes Energy reform proposal contains articles to secure contracts, financial regimes, and change towards corporate fiscal regime in 10 years Need to wait for secondary laws and specific regulations (2014) Geographical context National National, international and subnational Energy reform not totally committed to international, national yes Need to wait for secondary laws and specific regulations (2014) Distribution of resources Centralized Dispersed or shared among participants Shared among participants ✓ Interests National constitutional interest driven by history or political tradition Differentiated, subject to regulatory oversight, international oversight Combined in the energy reform voted proposal, with union powers not addressed, or other powerful interests; not too clear on international oversight Absent Norms (legal and implicit) Mainly sovereignty, with strong central control, strong legal stance and distributive aim Limited sovereignty, with distributed/market control, strategic subnational and national stance and efficiency Proposal still needs to see implementation in secondary laws and rulings in 2014 Need to wait for secondary laws and specific regulations (2014) Decision-making and organization Central, hierarchical, obligatory consensus, not organizational Decentralized by strategic objectives, horizontal, self-government, market driven financial, fiscal and labour regimes Energy reform initiative call for a strong reorganization and decentralized decisions ✓ Policy implementation Centralized, shared only to directorate and unions of the enterprises, coercive Fragmented, various level of government involvement, shared with enterprise, unions and civil society Energy reform initiative change in policy implementation, given the restructuring of all the sector ✓ International scope Not important Very important Energy reform initiative only mentions Pemex to issue equity in the future, with no details Need to wait for secondary laws and specific regulations (2014) Transparency issues Not important [sic] Very important Energy reform initiative not clear on transparency Absent (corruption issues as well) View Large Table 2. Modified analysis of the shift from government to governance in accordance with the 13 dimensions established by Ibarra-Yuñez, with last two columns added by authors Dimension Government Governance Mexico December 2013 after voting Energy reform governance compliance Efficiency aims Subject to various levels of central objectives, non-economic Economic converging objectives on costs, output, technology and final prices Economic and commercial, additional to urgency to finance deep-water exploration and development and shale oil and gas ✓ International competitiveness No reference necessary, but social of political objectives for NOCs International referents among institutions, governments and paradigmatic NOCs Energy reform initiative contains strategies for Pemex to become modern and internationally competitive, where international markets have been lost Need to wait for secondary laws and specific regulations (2014) Security Guaranteed by state as national priority in protecting state-owned enterprises Shared by international, regional, national policies, guaranteed by the market mechanism Contained in the energy reform proposal, with referents mentioned and international partners ✓ Reference in the government and governance State and NOC Pemex only (self-reference) Petrobras, Ecopetrol, Statoil (Equinox) have been proposed, from various levels of liberalization and democratization, and shared state involvement Decided turn towards governance; not very clear if governance will adhere to international, financial and market rules Absent Competition structure, fiscal and financial regimes No competition, centralized fiscal and financial regimes Transitional to market driven, including fiscal and financial regimes Energy reform proposal contains articles to secure contracts, financial regimes, and change towards corporate fiscal regime in 10 years Need to wait for secondary laws and specific regulations (2014) Geographical context National National, international and subnational Energy reform not totally committed to international, national yes Need to wait for secondary laws and specific regulations (2014) Distribution of resources Centralized Dispersed or shared among participants Shared among participants ✓ Interests National constitutional interest driven by history or political tradition Differentiated, subject to regulatory oversight, international oversight Combined in the energy reform voted proposal, with union powers not addressed, or other powerful interests; not too clear on international oversight Absent Norms (legal and implicit) Mainly sovereignty, with strong central control, strong legal stance and distributive aim Limited sovereignty, with distributed/market control, strategic subnational and national stance and efficiency Proposal still needs to see implementation in secondary laws and rulings in 2014 Need to wait for secondary laws and specific regulations (2014) Decision-making and organization Central, hierarchical, obligatory consensus, not organizational Decentralized by strategic objectives, horizontal, self-government, market driven financial, fiscal and labour regimes Energy reform initiative call for a strong reorganization and decentralized decisions ✓ Policy implementation Centralized, shared only to directorate and unions of the enterprises, coercive Fragmented, various level of government involvement, shared with enterprise, unions and civil society Energy reform initiative change in policy implementation, given the restructuring of all the sector ✓ International scope Not important Very important Energy reform initiative only mentions Pemex to issue equity in the future, with no details Need to wait for secondary laws and specific regulations (2014) Transparency issues Not important [sic] Very important Energy reform initiative not clear on transparency Absent (corruption issues as well) Dimension Government Governance Mexico December 2013 after voting Energy reform governance compliance Efficiency aims Subject to various levels of central objectives, non-economic Economic converging objectives on costs, output, technology and final prices Economic and commercial, additional to urgency to finance deep-water exploration and development and shale oil and gas ✓ International competitiveness No reference necessary, but social of political objectives for NOCs International referents among institutions, governments and paradigmatic NOCs Energy reform initiative contains strategies for Pemex to become modern and internationally competitive, where international markets have been lost Need to wait for secondary laws and specific regulations (2014) Security Guaranteed by state as national priority in protecting state-owned enterprises Shared by international, regional, national policies, guaranteed by the market mechanism Contained in the energy reform proposal, with referents mentioned and international partners ✓ Reference in the government and governance State and NOC Pemex only (self-reference) Petrobras, Ecopetrol, Statoil (Equinox) have been proposed, from various levels of liberalization and democratization, and shared state involvement Decided turn towards governance; not very clear if governance will adhere to international, financial and market rules Absent Competition structure, fiscal and financial regimes No competition, centralized fiscal and financial regimes Transitional to market driven, including fiscal and financial regimes Energy reform proposal contains articles to secure contracts, financial regimes, and change towards corporate fiscal regime in 10 years Need to wait for secondary laws and specific regulations (2014) Geographical context National National, international and subnational Energy reform not totally committed to international, national yes Need to wait for secondary laws and specific regulations (2014) Distribution of resources Centralized Dispersed or shared among participants Shared among participants ✓ Interests National constitutional interest driven by history or political tradition Differentiated, subject to regulatory oversight, international oversight Combined in the energy reform voted proposal, with union powers not addressed, or other powerful interests; not too clear on international oversight Absent Norms (legal and implicit) Mainly sovereignty, with strong central control, strong legal stance and distributive aim Limited sovereignty, with distributed/market control, strategic subnational and national stance and efficiency Proposal still needs to see implementation in secondary laws and rulings in 2014 Need to wait for secondary laws and specific regulations (2014) Decision-making and organization Central, hierarchical, obligatory consensus, not organizational Decentralized by strategic objectives, horizontal, self-government, market driven financial, fiscal and labour regimes Energy reform initiative call for a strong reorganization and decentralized decisions ✓ Policy implementation Centralized, shared only to directorate and unions of the enterprises, coercive Fragmented, various level of government involvement, shared with enterprise, unions and civil society Energy reform initiative change in policy implementation, given the restructuring of all the sector ✓ International scope Not important Very important Energy reform initiative only mentions Pemex to issue equity in the future, with no details Need to wait for secondary laws and specific regulations (2014) Transparency issues Not important [sic] Very important Energy reform initiative not clear on transparency Absent (corruption issues as well) View Large Table 2 demonstrates how close or far the energy reform has been reaching its own goals in order to transition from a government structure to a governance system. It is clear that the governance framework post-2013 energy reform is a sound theoretical framework’,61 with Ibarra-Yuñez noting that the Mexican government has been increasingly using international examples of best practice to convince legislator, among them Norway. The Mexican government has sought to emulate the Norwegian governance for a number of reasons. First, Norway has a tradition of good governance, characterized by transparent rules.62 However, it is important to note that this governance system is against a backdrop of a well-developed judicial system, long-term experience in licensing that incorporates private entities, cooperation between licences and government authorities, and an energy sector that is not dependent upon oil.63 Given these limitations, the change from a centralized government structure to a decentralized, horizontal, shared governance structure64 demonstrates Mexico’s desire to implement real and lasting reform, and the Norwegian governance structure may well serve as a sound model. Indeed, Ibarra-Yuñez recognizes that the Norwegian model is ‘balanced between commercial, policy, and regulatory roles, granting governance dimensions with a long-term vision not only in contracts but also in how the government uses net income for pension funds or for subsidizing research and innovation rather than for state/municipal distribution.’65 Norway’s energy policy and governance arrangements have been recognized by Mexican authorities as a model for developing economies primarily due to the economic management capacity and the use of oil profits for social objectives.66 6. POST-ENERGY REFORM FRAMEWORK: MEETING THE CONSTITUTIONAL OBJECTIVES OF MAXIMIZING REVENUE AND CONTRIBUTING TO THE LONG-TERM INVESTMENT OF THE MEXICAN STATE? The new Mexican energy model is similar to the Norwegian participatory intervention model, where, similar to the role of Statoil, Pemex behaves as a private competitor with no more privileges except those from entitlements assigned in Round ‘0’ subject to development in a timely matter. This is similar to Norwegian entitlements since 1996 under the Petroleum Activities Act.67 The Mexican Hydrocarbons Act enables state intervention in a number of forms: for instance, Article 16 of the Hydrocarbon Law states that among the guidelines governing competitive bidding for E&E contracts adopting by the Ministry of Energy may be an equity holding up to 30 per cent of the investment of the project by the Mexican state through Pemex, any other state productive owned enterprise or a ‘specialized financial vehicle’ of the Mexican state for projects, which are desirable to foster through a specialized financial vehicle of the Mexican state. With this provision, the Mexican state could emulate the Norwegian model by establishing the Mexican state’s Direct Financial Interest over the oil fields awarded, thereby increasing revenue from profitable fields similar to the Norwegian approach. Another example of a participatory tool is contained in Article 17 of the Hydrocarbon Law setting a mandatory intervention of Pemex in the E&E contract for at least 20 per cent of the project investment in cases involving transboundary reservoirs. The analysis in sections ‘Overview of the reform’ and ‘Petroleum governance in the post-reform era’ above have demonstrated that the motivation of the Mexican government to reform the energy sector was borne out of a need for investment, technical assistance and to remove the monopolistic nature of Pemex in order to enable private companies to participate in the Mexican petroleum sector, as set out in Article 27 … ‘the State will explore and exploit oil and other hydrocarbons through assignments given to productive State-owned companies, or through contracts to be executed with them or private parties, in accordance with the law’. However, upon reading the text of Articles 25, 27 and 28 of the Mexican Constitution, it is clear that the Mexican government also took the opportunity to enshrine in the Constitution, the requirement for social and economic benefit for Mexicans from the development of the petroleum resources. The new Article 25 of the Constitution ensures that the petroleum resources will be utilized to foster economic and social development for the Mexican people: ‘… social and private sector enterprises will be supported and fostered under the criteria of social equity, productivity and sustainability, subject to the public interest and to the use of the productive resources for the general good, preserving them and the environment’.68 Coupled with this is the expressly states requirement under Article 27, developing petroleum resources to ‘… obtain revenue and contribute to the long-term development of the Nation’. This requirement for productive use of resources for social good while preserving the environment and protecting the public interest has many similarities to the goals of petroleum resource development in Norway, enshrined in section 1-2 of the Petroleum Activities Act 1996: Resource management of petroleum resources shall be carried out in a long-term perspective for the benefit of the Norwegian society as a whole. In this regard the resource management shall provide revenues to the country and shall contribute to ensuring welfare, employment and an improved environment, as well as to the strengthening of Norwegian trade and industry and industrial development, and at the same time take due regard to regional and local policy considerations and other activities [emphasis added]. The establishment of a petroleum fund in Mexico follow’s the example set by the Norwegian petroleum fund, which was established in 1990 by the ‘Government Petroleum fund Act no. 36 of 22 June 1990’ in order to invest the surplus revenue from petroleum development, reduce susceptibility to volatility associated with oil prices, and to provide investments for future generations. Similarly, Article 28 of the Mexican Constitution expressly requires that ‘… the State shall have a public trust entitled Mexican Oil Fund for Stabilization and Development, whose fiduciary agent shall be the Central Bank, that will be tasked, under the terms set forth by the laws, with receiving, managing and distributing revenues’. Considering the constitutional objective to maximize revenue for the long-term development of the Mexican nation, Ibarra-Yuñez extols the suitability of the Norwegian upstream model as that most suitable for Mexico.69 However he sees the role of the government as still ‘invasive’.70 This raises the question as to whether state intervention71 is needed to achieve revenue maximization. There is little doubt that the success of Norway under the participatory intervention form of regulation may serve to enlighten the future path for Mexico, particularly considering the relationship between the two states,72 and the role of the Norwegian state in ownership, control and governance within the petroleum sector.73 Indeed, Norway argues that ‘national management and control are important to ensure that the management of the resource benefits the entire Norwegian society’.74 Certainly, the governance framework that has been established by the Mexican authorities resembles that of Norway, characterized by a separation of functions, with the Ministry of Petroleum and Energy establishing and reviewing policy, the Norwegian Petroleum Directorate regulating access and field development, the Petroleum Safety Authority regulating health, safety and environment, and Statoil a commercial entity with no special conditions or privileges. However, the question remains whether Mexico will accomplish its goals of maximizing revenue and developing petroleum for the long-term development of the nation. In assessing the capacity for Mexico to accomplish its constitutional objectives, it is impossible to compare the reformed Mexican governance framework to the Norwegian system as it stands today. The Norwegian governance system has developed over the last 45 years, since the mandating of the 10 oil commandments in 1971. In order to compare the Mexican and Norwegian approaches, it is necessary to ensure that the comparison is made at the same stages. The current period in Mexico is characterized by a long-term view to develop resources for the good of the Mexican people. This ideal is similar to Norway’s view in the mid-1970s, when the government of the day saw the objective of petroleum resource development as a tool for developing a ‘qualitatively better society’ manifested as Norwegian petroleum expertise both in terms of regulation (management, commercial knowledge and success) and led to establishment of Statoil and the independent regulator Norwegian Petroleum Development (NPD).75 This made significant contribution to the development of Norwegian industry based on the petroleum industry. Certainly the Norwegian experience demonstrates that under such a governance framework, it is possible to develop petroleum resources for the good of society. However, it is not just the governance framework that generates revenue and fosters long-term beneficial development for society. The production and development of petroleum in long-term perspective requires comprehensive regulation based on knowledge and facts within a prudent, risk-based health, safety and environment framework.76 Such a framework has been in existence in Norway since 1985, when the first comprehensive petroleum legislation was established. This framework continues today, and subject to requirements under the Hydrocarbon Directive and Energy Charter Treaty, which have influenced Norway’s capacity to implement ‘local content provisions’ requiring the use of Norwegian companies and labour.77 Such development of ‘local content’ has been exceptionally successful, with expertise and market share in associated technologies with non-petroleum applications, such as helidecks, concrete and steel engineering and fabrication, electronics and automation, and shipbuilding,78 requiring competition and diversity at all levels.79 Norwegian experience shows that with bold use of local content policies, particularly as part of the licensing framework,80 it is possible to build local competence to world-class standards. Critical to such success was the utilization of existing industries and the drawing on strengths and competencies available in the early years of petroleum development.81 These nationalistic strategies sought to nurture and encourage Norwegian petroleum companies through information exchange, technology transfer and skilling, in order to build the capacity for Norwegian companies to develop Norway’s petroleum resources.82 To date there appears to be little evidence of local content provisions in the existing governance and regulatory framework for Mexico’s petroleum sector, neither as part of the Hydrocarbons Law or part of the licensing framework. The successful development of industry in Norway during the 1970s and 1980s was characterized by state intervention, with the law stipulating the requirement for local content provisions, rather than leaving the development of local industries to the market. In the early 1990s as a consequence of its entry into the European Economic Area (EEA) and the ratification of the Energy Charter Treaty, Norway was prevented from using the licensing process and petroleum law to support Norwegian industry and labour during the procurement process. Unless and until Mexico takes a similar approach, it is unlikely that successful industrial development based on petroleum activities will occur. The advantage from Mexico at present is that it is not limited by international or regional law obligations, and can establish favourable conditions for Mexican industries. However, this opportunity may be limited by the next incarnation of the North American Free Trade Agreement (NAFTA) if it has investment conditions similar to those in Chapter 11 of the previous NAFTA.83 It is important to note that under the previous NAFTA, it was not possible for a government to set conditions for the grant of a licence, as demonstrated by Mobile Investment Inc and Murphy Oil Corporation v Canada,84 an arbitration relating to a breach of Chapter 11 of North American Free Trade Agreement (NAFTA) by the Canadian government due to a requirement under the grant of a licence for companies to contribute to a petroleum R&D fund. The maximizing of revenue can only be accomplished in two ways: increased taxation/royalties or an increase in petroleum production. Assuming that taxation and royalties cannot be increased,85 the only option left for a state to maximize revenue is to maximize extraction from a field, yielding more oil, which in turn means greater revenue from royalties and taxation. This concept of maximizing extraction is incorporated into the Norwegian Legal Framework: Petroleum production must be conducted in accordance with prudent production technologies and sound economic principles, to ensure that petroleum resources are not wasted. The production shall take place in accordance with prudent technical and sound economic principles and in such a manner that waste of petroleum or reservoir energy is avoided. The licensee shall carry out continuous evaluation of production strategy and technical solutions and shall take the necessary measures in order to achieve this.86 The ‘prudent production’ principle enshrined in Norwegian petroleum legislation ensures that field development is controlled by the state where necessary to ensure extraction is optimized. The Norwegian government exerted such field development control over the Ekofisk field, resulting in a current expected recovery of 55 per cent of the reservoir, compared to the original predicted recovery rate of 17 per cent.87 In the original approved field plan, the operator expected to recover 17 per cent. When production decreased drastically, similar to the Cantarell field, the prudent production requirements forced the operator to undertake enhanced oil recovery and submit a new field development plan.88 Given that the Ekofisk field holds an estimated 4 billion barrels of oil, it is clear that the difference between 17 per cent and 55 per cent recovery has a huge impact on revenue. Currently, the Mexican Hydrocarbons Law does not contain similar ‘prudent production’ requirements. This is hardly surprising, given that until now the Mexican government has exerted strong control over the only oil company extracting oil in the jurisdiction, Pemex. However, as international commercial oil companies commence activities, it will be essential for the Mexican state to exert control over production in a manner similar to that of Norway to ensure production is optimized. However, control over field development is exerted through regulations issued by the CNH. For instance, the ‘Guidelines For Filing, Approving and Overseeing The Fulfillment of the Exploration and Development Plans for The Hydrocarbon Extraction’ (and amendments) state that the CNH’s obligation to maximize the value of hydrocarbons, procuring an increase in oil reserves, and a duty to set communication mechanisms with competent authorities such as the Ministry of Energy, Economy and the ASEA to carry out integral evaluation over the plans and their amendments and to foster the development of petroleum activities in order to maximize the recovery factor and the maximum extraction of petroleum and natural gas volume under economically viable conditions, sustainable and with an adequate industrial security, operational and environmental protection. Such requirements have a similar effect to the ‘prudent production’ requirements in that the goals of constant evaluation and maximizing recovery from fields are a legal requirement. 7. THE NEW MEXICAN PETROLEUM GOVERNANCE SYSTEM AND THE ROLE OF THE STATE: SUSTAINABLE PARTICIPATORY INTERVENTION? The focus of this article has been 2-fold: an analysis of petroleum governance framework established as a result of the 2013 energy reform, and a consideration of whether the resultant governance framework will be able to deliver the constitutional objectives of optimizing revenue, and developing the petroleum resources for the benefit of the Mexican people. Certainly, the resultant Mexican governance framework has emulated Norwegian petroleum governance. Crucially, the reforms have shifted the role and influence of the state regarding petroleum governance. Moving from a vertical, state-centric approach described as ‘monopolistic intervention’ to ‘participatory intervention’, where the power of the state is curtailed, competition is introduced, and autonomous regulatory bodies are established, has been an enormous achievement for Mexico. Such reforms indicate Mexico’s desire to adopt a governance framework and similar to that of Norway, in the hope of achieving similar economic and social gains from the development of its petroleum. This raises a critical question: can the Norwegian approach to petroleum governance be replicated in developing countries such as Mexico? Clearly, the 2013 energy reforms represent an attempt by Mexico to emulate the Norwegian approach, adopting similar governance structures and petroleum policies, particularly policies relating to revenue maximization and long-term social development. Many academics see the Norwegian approach as capable of being replicated in developing countries,89 particularly the architect of the Norwegian system, Al-Kasim.90 First, attempts by the Mexican Government to establish a policy and governance framework capable of implementing the Norwegian approach have been successful. A strong and independent framework has been established, supported by legal reform that implements the new regulatory structure. Certainly, the development of a governance framework that emphasizes the participatory nature of the state, and the dismantling of monopolistic governance, gives Mexico its best opportunity for achieving its constitutional objectives of optimizing revenue and contributing to the long-term development of the Mexican state. However, the establishment of governance structures and laws is only part of Norway’s success story. There has also been the implementation of local content policies and the ongoing requirement for prudent production in order to maximize production. As the experience of Norway over the last 50 years demonstrates, many challenges arise in the development of a state’s petroleum resources, requiring structural and legal reform. For Norway, such challenges have been met with a spirit of bipartisanship, with political consensus on the role and direction of petroleum in Norwegian life and economics. Hence, Norway’s success has occurred in no small part as a result of democracy, political stability and consensus.91 For Mexico, these fundamental notions represent challenges, as demonstrated by the recent elections and possible implications for energy reform, with the incoming president indicating that the 2013 energy reforms are ‘on trial’, demanding big oil companies to produce results.92 Furthermore, given the political and economic turmoil that has beset Mexico for the last five decades, it is difficult to envisage lasting political stability. Upon the ascent of Andrés Manuel López Obrador (AMLO) to president of Mexico on 1 December 2018, the general perception among upstream petroleum private investors is uncertainty. AMLO made it clear during both his presidential campaign and inauguration. Investors fear that he will undo much of the reform that occurred in 2014, sparked by his comments in the lower house after his inauguration, stating that the energy reforms were part of policies that must end, while at the same time pledging to respect contracts already awarded to foreign companies.93 As of January 2019, few details on the scope and specific details of the energy policy has been published in the Official Federal Gazette, in accordance with the provisions of the Planning Law. Rather there are indications that the new Mexican president seeks to undo some of the reforms under previous president Nieto, particularly in relation to the participation of foreign companies in oil and gas exploration and exploitation. Perhaps, the first indication of looming changes occurred when the President of the Republic appointed the Agricultural Engineer, Mr Octavio Romero Oropeza (ORO), as General Director ofPemex. This decision was criticized on the grounds that such public servant might not comply with the requirements of experience, capacity and professional prestige in the hydrocarbons sector as required under Article 47 of the Mexican Hydrocarbon Law.94 In addition to a lack of experience, ORO politically opposed Nieto’s energy reform. The first indications of a new direction in Mexico’s energy reform of the upstream petroleum sector came in December 2018. The Secretary of Energy, through publication and various press releases, announced the ‘National Hydrocarbon Production Plan’, with the main goal of energy sufficiency, maximizing social and economic benefits, and kick-start development in southwest Mexico. Specifically, the plan seeks to: (i) increase crude production from 1.75 mm bpd in 2018 to 2.4 million bpd by 2024; (ii) drill 117 wells through new types of contracts with private companies; (iii) increase the annual budget for exploration by 10 per cent; and (iv) focus on fields with 2P reserves.95 As part of the Plan, AMLO has linked the further grant of concessions offshore to the outcome of the present contracts, to ensure that companies with existing contracts obtained under the energy reform actually invest in the exploitation of hydrocarbons.96 Given the terms and language used by AMLO in announcing the new conditions, the major uncertainty for investors is whether the 2013 energy reform will be revoked or not. Evidence to date indicates that AMLO has decided to maintain aspects of energy reform for the time being, respecting the contractual commitments acquired with the private parties so that the 107 E&E contracts already entered into by the Mexican state shall not be affected, but subject to the condition that they comply with the contractual commitments agreed during the following three years, under the logic of reversing the decline in oil production.97 The argument that the energy reform was protected since it is contained in the General Constitution continues to being diluted and is losing strength as time goes by, since the implementation of the reform depends on the state vision of the president in office and expressed in the public policy. Indeed, the exercise of presidential power in matters of energy, apparently cannot be restricted, at least not for the purpose of following a single vision, a single model, a single vision of state since the pursuit of a specific policy is essentially a discretionary presidential decision, based on the theory of the economic rectory of the state as established in Article 25 of the Constitution. Although it is true that the Constitution establishes the energy model by means of which revenues are maximized, in reality the president can utilize different means to maximize the income of the nation in the long term, and can develop any public policy that meets the requirements set out in Articles 25, 27 and 28 of the Constitution. Supposing that his actions are unconstitutional, AMLO has sufficient political strength, both in the Federal Congress and in the majority of local Congresses, to establish a new General Constitution, taking as a precedent the democratic exercise carried out in Mexico City and that most of its provisions be sanctioned as constitutional by the Supreme Court of Justice of the nation.98 Furthermore, the Mexican presidential system enables the president, depending on the circumstances, to use (or not) the contract models of E&E of hydrocarbons established in the Constitution and Hydrocarbon Law, including the decision regarding private entity participation (it is not an acquired right, it is an option available to the Mexican state).99 Therefore, such models cannot be considered as the only means to achieve revenue maximization, but rather represent a tool to achieve an outcome. The president has the capacity to implement any such system that will deliver the constitutional objective, that being maximizing revenue and attaining development for the benefit of Mexico. Given the initial comments and appointments of AMLO, it is foreseeable that AMLO, in his state vision on energy, has the intention of reiterating, at least in part, the dominance of the state in controlling the development of hydrocarbons. Such control will be exerted in a number of ways. First, in its regulatory capacity and as a participant, manifested mainly through Pemex, with very limited private participation, where such private participants will be subject to continuous scrutiny, subjugated to and dependent on Pemex while the monopolistic power of Pemex may be strengthened through the elimination of asymmetric regulation. To this end, it is highly probable that a political agenda will be promoted where the degree of private sector participation and conditions of access to oil resources will be reconfigured, a kind of ‘new social oil pact’ similar to that formalized by former president Enrique Peña Nieto, but now in its version of ‘pact for Mexico’. Such political position that strengthens the role of the state in the well-being of Mexico in order to appropriate the benefits of oil in favour of the Mexican state is laudable. However, economic and structural issues such as debt, inefficiency, a burdensome fiscal regime and systemic corruption in Pemex, all of which led to the 2014 energy reform in the first place, are likely to influence the ability of ALMO to deliver effective sectoral changes in line with the constitutional objectives. Associated with democracy and political stability is institutional capacity. For Mexico weak institutions, characterized by a question over the independence of the judiciary and ministers, may undermine such capacity. In addition, there are concerns regarding the separation of powers and the capacity for each of the branches of government to remain independent. Such independence is also threatened by corruption, and its possible existence in government agencies and regulators.100 The presence of corruption also threatens the enforceability of petroleum laws, and establishes a fertile ground for regulatory capture, particularly in relation to Pemex and other favoured companies. When questioned at the Energy Mexico Congress in January 2019, the newly appointed Secretariat of Energy, Rocío Nahle, confirmed that the legal and regulatory framework derived from the energy reform will not be amended, a view consistent with that of AMLO. However, on 9 December 2018, Congress woman Dr Miroslava Carrillo Martínez, from the Movimiento Regeneraciœn Nacional (MORENA) parliamentary group, proposed the modification of the existing Hydrocarbons Law. Such proposals are summarized in Table 3.101 Table 3. Proposed reform of petroleum law and impact/effect (compiled by authors) Proposed reform of petroleum law Prima facie analysis of proposal An additional purpose is added to Pemex in order to guarantee energy security and sovereignty. In addition, it is proposed to make applicable the Laws on Lease Acquisitions and Services of the Public Sector and the Law on Public Works and Related Services. (Leyes de Adquisiciones Arrendamientos y Servicios del Sector Público y la Ley de Obras Públicas y Servicios Relacionados con las Mismas) Can oil revenues be maximized and the energy security and sovereignty be guaranteed at the same time, simultaneously, coexisting or diverging? The addition of guaranteeing energy security and sovereignty overlaps current functions of the Secretariat of Energy (in terms of the Organic Law of the Federal Public Administration (recently amended); 33 FV, XVII, XXV); it generates redundancy and confusion of roles and at the end, public policy can affect business decisions that are based on maximizing Pemex’s profits. Uncertainty about the legal nature of Pemex and the addition of public policy objectives may detract from the autonomy of the business management and/or business of Pemex as a ‘state’ productive enterprise. Since the law on Lease Acquisitions and Services of the Public Sector and the law on Public Works and Related Services are applicable, it could return to the model of being a paraestatal (as a governmental entity), which may distort the spirit of being a productive enterprise of the state, whose objectives could be contradictory, one would seek the satisfaction of the electorate and the other utilities in its operations; even such laws would prohibit arbitration in the case of administrative rescission. It is proposed that Pemex directly enter into E&E contracts without the intervention of the National Hydrocarbons Commission. It is indicated in the merits of the initiative that the proposed amendment to the Petroleos Mexicanos law is in accordance with the proposed amendment to the Hydrocarbons Law. Oil blocks not yet identified. Also, possible controversy regarding five-year plan of bidding for exploration and extraction of hydrocarbons in force until 2020. Is the governance system derived from the energy reform breaking down? Can it be legally relegated to the CNH when its authority derives directly from the General Constitution? Should the governing law of the regulators be modified? Change of the Corporate Governance of Pemex, reducing the faculties of the members of the board of directors and strengthening the participation of the General Director (directly appointed by the President of the Republic), mainly to directly lead the central leadership and strategic direction of Pemex, which is carried out in accordance with the National Development Program and the National Energy policy. Possible contradiction in relation to best corporate practices, see OECD Guidelines on Corporate Governance of state owned enterprises (SOE) (2015). The CEO is accountable to the Board of Directors, is not part of the governing body, is accountable to it and is dependent on its decisions, including removal from office. Can a Chief Executive Officer carry out the central management and strategic direction of the activities without counterbalancing the Board of Directors? Indeed, is contrary to the corporate regulations of the Ley General de Sociedades Mercantiles (Company’s law) and Ley del Mercado de Valores (Securities law), which are applicable in terms of Article 3 of the law of pemex (LPEMEX) in force. Consequently, the power of independent directors is weakened. Proposed reform of petroleum law Prima facie analysis of proposal An additional purpose is added to Pemex in order to guarantee energy security and sovereignty. In addition, it is proposed to make applicable the Laws on Lease Acquisitions and Services of the Public Sector and the Law on Public Works and Related Services. (Leyes de Adquisiciones Arrendamientos y Servicios del Sector Público y la Ley de Obras Públicas y Servicios Relacionados con las Mismas) Can oil revenues be maximized and the energy security and sovereignty be guaranteed at the same time, simultaneously, coexisting or diverging? The addition of guaranteeing energy security and sovereignty overlaps current functions of the Secretariat of Energy (in terms of the Organic Law of the Federal Public Administration (recently amended); 33 FV, XVII, XXV); it generates redundancy and confusion of roles and at the end, public policy can affect business decisions that are based on maximizing Pemex’s profits. Uncertainty about the legal nature of Pemex and the addition of public policy objectives may detract from the autonomy of the business management and/or business of Pemex as a ‘state’ productive enterprise. Since the law on Lease Acquisitions and Services of the Public Sector and the law on Public Works and Related Services are applicable, it could return to the model of being a paraestatal (as a governmental entity), which may distort the spirit of being a productive enterprise of the state, whose objectives could be contradictory, one would seek the satisfaction of the electorate and the other utilities in its operations; even such laws would prohibit arbitration in the case of administrative rescission. It is proposed that Pemex directly enter into E&E contracts without the intervention of the National Hydrocarbons Commission. It is indicated in the merits of the initiative that the proposed amendment to the Petroleos Mexicanos law is in accordance with the proposed amendment to the Hydrocarbons Law. Oil blocks not yet identified. Also, possible controversy regarding five-year plan of bidding for exploration and extraction of hydrocarbons in force until 2020. Is the governance system derived from the energy reform breaking down? Can it be legally relegated to the CNH when its authority derives directly from the General Constitution? Should the governing law of the regulators be modified? Change of the Corporate Governance of Pemex, reducing the faculties of the members of the board of directors and strengthening the participation of the General Director (directly appointed by the President of the Republic), mainly to directly lead the central leadership and strategic direction of Pemex, which is carried out in accordance with the National Development Program and the National Energy policy. Possible contradiction in relation to best corporate practices, see OECD Guidelines on Corporate Governance of state owned enterprises (SOE) (2015). The CEO is accountable to the Board of Directors, is not part of the governing body, is accountable to it and is dependent on its decisions, including removal from office. Can a Chief Executive Officer carry out the central management and strategic direction of the activities without counterbalancing the Board of Directors? Indeed, is contrary to the corporate regulations of the Ley General de Sociedades Mercantiles (Company’s law) and Ley del Mercado de Valores (Securities law), which are applicable in terms of Article 3 of the law of pemex (LPEMEX) in force. Consequently, the power of independent directors is weakened. View Large Table 3. Proposed reform of petroleum law and impact/effect (compiled by authors) Proposed reform of petroleum law Prima facie analysis of proposal An additional purpose is added to Pemex in order to guarantee energy security and sovereignty. In addition, it is proposed to make applicable the Laws on Lease Acquisitions and Services of the Public Sector and the Law on Public Works and Related Services. (Leyes de Adquisiciones Arrendamientos y Servicios del Sector Público y la Ley de Obras Públicas y Servicios Relacionados con las Mismas) Can oil revenues be maximized and the energy security and sovereignty be guaranteed at the same time, simultaneously, coexisting or diverging? The addition of guaranteeing energy security and sovereignty overlaps current functions of the Secretariat of Energy (in terms of the Organic Law of the Federal Public Administration (recently amended); 33 FV, XVII, XXV); it generates redundancy and confusion of roles and at the end, public policy can affect business decisions that are based on maximizing Pemex’s profits. Uncertainty about the legal nature of Pemex and the addition of public policy objectives may detract from the autonomy of the business management and/or business of Pemex as a ‘state’ productive enterprise. Since the law on Lease Acquisitions and Services of the Public Sector and the law on Public Works and Related Services are applicable, it could return to the model of being a paraestatal (as a governmental entity), which may distort the spirit of being a productive enterprise of the state, whose objectives could be contradictory, one would seek the satisfaction of the electorate and the other utilities in its operations; even such laws would prohibit arbitration in the case of administrative rescission. It is proposed that Pemex directly enter into E&E contracts without the intervention of the National Hydrocarbons Commission. It is indicated in the merits of the initiative that the proposed amendment to the Petroleos Mexicanos law is in accordance with the proposed amendment to the Hydrocarbons Law. Oil blocks not yet identified. Also, possible controversy regarding five-year plan of bidding for exploration and extraction of hydrocarbons in force until 2020. Is the governance system derived from the energy reform breaking down? Can it be legally relegated to the CNH when its authority derives directly from the General Constitution? Should the governing law of the regulators be modified? Change of the Corporate Governance of Pemex, reducing the faculties of the members of the board of directors and strengthening the participation of the General Director (directly appointed by the President of the Republic), mainly to directly lead the central leadership and strategic direction of Pemex, which is carried out in accordance with the National Development Program and the National Energy policy. Possible contradiction in relation to best corporate practices, see OECD Guidelines on Corporate Governance of state owned enterprises (SOE) (2015). The CEO is accountable to the Board of Directors, is not part of the governing body, is accountable to it and is dependent on its decisions, including removal from office. Can a Chief Executive Officer carry out the central management and strategic direction of the activities without counterbalancing the Board of Directors? Indeed, is contrary to the corporate regulations of the Ley General de Sociedades Mercantiles (Company’s law) and Ley del Mercado de Valores (Securities law), which are applicable in terms of Article 3 of the law of pemex (LPEMEX) in force. Consequently, the power of independent directors is weakened. Proposed reform of petroleum law Prima facie analysis of proposal An additional purpose is added to Pemex in order to guarantee energy security and sovereignty. In addition, it is proposed to make applicable the Laws on Lease Acquisitions and Services of the Public Sector and the Law on Public Works and Related Services. (Leyes de Adquisiciones Arrendamientos y Servicios del Sector Público y la Ley de Obras Públicas y Servicios Relacionados con las Mismas) Can oil revenues be maximized and the energy security and sovereignty be guaranteed at the same time, simultaneously, coexisting or diverging? The addition of guaranteeing energy security and sovereignty overlaps current functions of the Secretariat of Energy (in terms of the Organic Law of the Federal Public Administration (recently amended); 33 FV, XVII, XXV); it generates redundancy and confusion of roles and at the end, public policy can affect business decisions that are based on maximizing Pemex’s profits. Uncertainty about the legal nature of Pemex and the addition of public policy objectives may detract from the autonomy of the business management and/or business of Pemex as a ‘state’ productive enterprise. Since the law on Lease Acquisitions and Services of the Public Sector and the law on Public Works and Related Services are applicable, it could return to the model of being a paraestatal (as a governmental entity), which may distort the spirit of being a productive enterprise of the state, whose objectives could be contradictory, one would seek the satisfaction of the electorate and the other utilities in its operations; even such laws would prohibit arbitration in the case of administrative rescission. It is proposed that Pemex directly enter into E&E contracts without the intervention of the National Hydrocarbons Commission. It is indicated in the merits of the initiative that the proposed amendment to the Petroleos Mexicanos law is in accordance with the proposed amendment to the Hydrocarbons Law. Oil blocks not yet identified. Also, possible controversy regarding five-year plan of bidding for exploration and extraction of hydrocarbons in force until 2020. Is the governance system derived from the energy reform breaking down? Can it be legally relegated to the CNH when its authority derives directly from the General Constitution? Should the governing law of the regulators be modified? Change of the Corporate Governance of Pemex, reducing the faculties of the members of the board of directors and strengthening the participation of the General Director (directly appointed by the President of the Republic), mainly to directly lead the central leadership and strategic direction of Pemex, which is carried out in accordance with the National Development Program and the National Energy policy. Possible contradiction in relation to best corporate practices, see OECD Guidelines on Corporate Governance of state owned enterprises (SOE) (2015). The CEO is accountable to the Board of Directors, is not part of the governing body, is accountable to it and is dependent on its decisions, including removal from office. Can a Chief Executive Officer carry out the central management and strategic direction of the activities without counterbalancing the Board of Directors? Indeed, is contrary to the corporate regulations of the Ley General de Sociedades Mercantiles (Company’s law) and Ley del Mercado de Valores (Securities law), which are applicable in terms of Article 3 of the law of pemex (LPEMEX) in force. Consequently, the power of independent directors is weakened. View Large These proposed amendments strengthen the management of Pemex, enabling greater use of discretion by management. Such discretion is not only a shift away from traditional rigid control of Pemex, but also represents incorporation of governance used in other jurisdiction, such as Norway. The threat associated with the implementation of such discretion in Mexico is obvious—in a country that is plagued by corruption and a lack of transparency, such discretionary power, while meant to be for the economic benefit of Mexico, may be used by a few for personal financial gain at the expense of the state. This further demonstrates weak institutional capacity and political stability. 8. CONCLUSION The reforms undertaken by Mexico in the first two decades of the 21st century represent seismic shifts in policy, law and governance. After the nationalization of Mexico’s oil and the associated industry in 1938, the state has moved to an increasingly monopolistic form of state control (monopolistic intervention). After the introduction of the Petroleum Act in 1958, little reform was undertaken and Pemex dominated both in the exploitation of petroleum and the Mexican economy. However, a series of economic crises, coupled with dramatically declining oil production, prompted the Mexican government to undergo a series of economic reforms. First, small reforms were undertaken with the role and operation of Pemex in 2008, although the monopolistic intervention approach of the government remained untouched. A bold and sweeping reform of the energy sector occurred in 2008, resulting in amendment of the key constitutional provisions (Articles 25, 27 and 28), as well as institutional and legal reform. The institutional and legal reforms implemented altered the role and nature of the state in developing petroleum resources, shifting from a monopolistic intervention approach to a participatory intervention approach akin to that taken by Norway, particularly in the 1970s and 18980s. Such reforms established a new governance system that exhibits many similarities to the governance system of the Norwegian petroleum sector. In addition, the constitutional reform sets the goals of optimizing petroleum revenue and developing petroleum resources in a long-term perspective for the benefit of the Mexican nation, echoing Norwegian goals of maximizing production and developing the petroleum for the benefit of Norwegian society as a whole. An analysis of the institutional and legal reforms reveals a sound governance framework that establishes a strong foundation capable of achieving the constitutional goals of optimizing revenue and developing petroleum resources for the benefit of the Mexican nation. However, this optimism comes with a caveat. It is not enough to establish the right laws, institutions and structures to create a governance framework. What is necessary is to underpin such governance with a political stability, long-term goals, political consensus, corruption-free institutions and strong institutions that zealously guard the separation of powers. To date, Mexico’s track record on each of these is poor: it has been marred by political instability, weak institutions plagued with corruption and changing policy according to the wishes of the elected president. Recent actions by the new Mexican president, including suspect appointments and changes to requirements for private entities, further undermine confidence in long-term stability and political consensus. Unless and until the necessary conditions are maintained, the governance framework for establishing participatory intervention will not achieve the constitutional goals, instead falling short amongst corruption, political instability and weak institutions. Footnotes 1 Such changes will be considered in the section ‘Overview of the reform’. 2 See Brent F Nelsen, The State Offshore: Petroleum, Politics, and State Intervention on the British and Norwegian Continental Shelves (Preager 1991). 3 Cesar Emiliano Hernandez Ochoa, ‘The New Energy Mexican Constitution and Its Implementation’ in International Energy Agency (IEA), Energy Policies Beyond IEA Countries (Mexico 2017) <https://webstore.iea.org/energy-policies-beyond-iea-countries-mexico-2017> accessed 12 January 2019; Clare Ribando Seelke and others, Mexico’s Oil and Gas Sector: Background, Reform Efforts, and Implications for the United States (2015); Congressional Research Service Report R43313 <https://fas.org/sgp/crs/row/R43313.pdf> accessed 12 January 2019; Richard HK Vietor and Haviland Sheldahl-Thomason, ‘Mexicós Energy Reform’(2017) Harvard Business School Report 717-027, <https://hepg.hks.harvard.edu/files/hepg/files/mexican_energy_reform_draft_1.23.pdf> accessed 12 January 2019; Duncan Wood (ed), Mexico’s New Energy Reform (Wilson Centre 2008); Manuel Aguilera and others, ‘Content and Scope of the Energy Reform’ (2016) 13(37) Inicio <http://www.revistas.unam.mx/index.php/ecu/article/view/54736> accessed 12 January 2019. 4 Trischa Mann and Audrey Blunden (eds), ‘Doctrine’ in Australian Law Dictionary (2nd edn, 2010). 5 The concept of exploitation covers the entire upstream petroleum chain, and includes exploration, development and appraisal. 6 Nelsen (n 2). 7 ibid. 8 ibid. 9 ibid. 10 ibid. 11 This was adopted in the early 1970s in response to voter demands. See ibid 9. 12 ibid. 13 ibid. 14 ibid. 15 Such benefits and requirements were laid down in a ‘Storting White Paper dated 14 June 1971’ (known as the ‘Ten Oil Commandments’), and reiterated in ‘Storting White Paper 28 (2010–11)’. 16 Promoting a different kind of revenue maximization, an indirect funding, by allowing partnerships (farm outs) with private stakeholders through bidding processes held by the National Hydrocarbon Commission awarded on economic-efficiency basis, in order to complement PEMEX’s operative capabilities as well as the opportunity to share geological, technological and financial risks, to stabilize and gradually increase its production along with the increasing available resources to expedite its financial recovery. The farm outs, strategic to complement operative capabilities and to strengthen PEMEX finances; <http://www.PEMEX.com/saladeprensa/boletines_nacionales/Paginas/2017-061-nacional.aspx> accessed 12 June 2018. This was backed by a competitive fiscal framework (government take) that attracts private investment; or to tackle PEMEX fiscal burden if oil fields are migrated to contracts. 17 Nelsen (n 2) 184. 18 For history of Pemex, see <http://www.PEMEX.com/en/about-PEMEX/history/Paginas/default.aspx> accessed 14 September 2018. 19 The major periods of development were considered by Lorenzo Meyer and Isidro Morales, Pétroleo y Nación la política petrolera de México (1900–1987) (2018); and Paul Alejandro Sánchez Campos, ‘Whatever Happened to the Mexican Oil Bonanza? The Challenges of Mexico’s New Oil Fund 1987 to 2015’ (2016) 56(2) Natural Resources Journal <https://digitalrepository.unm.edu/nrj/vol56/iss2/5/> accessed 12 January 2019. 20 Lorenzo Meyer and Isidro Morales, Pétroleo y Nación la política petrolera de México (1990). 21 Estudio Comparativo Del Texto Anterior Y El Texto Vigente De Los Artículos 25, 27 Y 28 Constitucionales En Materia Energética. 22 See art27 of the Mexican Constitution, pre-2013. 23 Daniel Romo, The Cantarell Oil Field and the Mexican Economy; ‘In addition, throughout the entire lifetime of Cantarell, the complex has lacked an optimal management strategy and has failed to take into account the conditions of supply and demand in the international oil market. Instead, the state enterprise exploited the resources, without optimizing income, in response to a market offering attractive prices. The 1990s bore witness to the worst correlation in this sense’; ‘In summary, the decision to exploit an oil field of the size of Cantarell should be made with priority given to technical choices and market strategies, rather than as a function of short-term government policies.’ <https://probdes.iiec.unam.mx/en/revistas/v46n183/body/v46n183a6_1.php> accessed 20 February 2019. This also suggests an intimate correlation with the generation of revenues to fund the government budget, which was highly dependent on oil revenues, up to 33% in 2014, thus an implicit recognition of the maximization of wealth principle on behalf the nation (non-written rule), using it as a pragmatic fiscal standard for petroleum exploitation. Campos (n 19). 24 Luis Enrique Cuervo, The New Law of Petroleum Mexicanos and the Basis of the Mexican Service Contract (2009) 400–01 <http://www.frc-law.com/files/lcuervo%20-%2003-04-09%20-%202376R95.pdf> accessed 12 December 2018. 25 Adrián Lajous, ‘The Governance of Mexicós Oil Industry’ in Santiago Levy and Michael Walton (eds), No Growth Without Equity? Inequality, Interests and Competition in Mexico (World Bank/Palgrave 2009) <https://siteresources.worldbank.org/INTMEXICOINSPANISH/Resources/nogrowthwithoutequity.pdf> accessed 12 November 2018. 26 ibid 405. 27 Nelsen (n 2) 8–9. 28 Norway is selected for comparison as it represents a strong example of participatory intervention, as analysed by Nelsen: ibid. 29 Tim R Samples and Jose Luis Vittor, ‘Energy Reform and the Future of Mexico’s Oil Industry: The PEMEX Bidding Rounds and Integrated Service Contracts’ (2012) 7(2) Texas Journal of Oil, Gas and Energy Law 215, 216. 30 ibid. 31 The three new laws were: Ley de Petróleos Mexicanos [Pemex Law], Diario Oficial de la Federación [DO], 28 de Noviembre de 2008 (Mex); Reglamento de la Ley de Petróleos Mexicanos [Regulations to the Pemex Law] Diario Oficial de la Federación [DO], 4 de Septiembre de 2009 (Mex); and Disposiciones Administrativas de Contratación en Materia de Adquisiciones, Arrendamientos, Obras y Servicios de las Actividades Sustantivas de Carácter Productivo de Petróleos Mexicanos y Organismos Subsidiarios [Administrative Guidelines for the Contracting of Services, Leases, Works and Acquisitions of Pemex’s Production Activities] Diario Oficial de la Federación [DO], 4 de Septiembre de 2009 (Mex). 32 Samples and Vittor (n 29) 225. 33 ibid. 34 ibid. Under the Hydrocarbons Law 1958, there was a strict and explicit prohibition on any form of production or risk sharing contract. See Lajous (n 25) 391. 35 Lajous, ibid 405. 36 See Ley de la Comision Nacional De Hidrocarburos, Law of the National Hydrocarbon Commission (Nuevo Ley DOF 28 de noviembre de 2008) art 2. 37 ‘Explainer: What is the Pacto por México?’ <www.as-coa.org/articles/explainer-what-pacto-por-m%C3%A9xico> accessed 18 February 2018. 38 ‘Assessing Mexico’s Economy at a Historical Milestone: Structural Reforms and Challenges’ <www.focus-economics.com/blog/posts/mexico-reforms> accessed 18 February 2018. 39 See n 37. 40 Claves: los cambios que realizó el PRI a sus documentos básicos <https://aristeguinoticias.com/0303/mexico/claves-los-cambios-que-realizo-el-pri-a-sus-documentos-basicos/> accessed 18 February 2018. 41 The Norwegian 10 oil commandments were presented to the Norwegian parliament by the standing approved by the Norwegian storting on 14 June 1971, and comprised the following: 1. that national supervision and control must be ensured for all operations in the Norwegian continental shelf; 2. that petroleum discoveries are exploited in a way that makes Norway as independent as possible of others for its supplies of crude oil; 3. that new industry is developed on the basis of petroleum; 4. that the development of an oil industry must take necessary account of existing industrial activities and the protection of nature and the environment; 5. that flaring of exploitable gas on the Norwegian continental shelf must not be accepted, except during brief periods of testing; 6. that petroleum from the Norwegian continental shelf must as a main rule be landed in Norway, except in those cases where socio-political considerations dictate a different solution; 7. that the state becomes involved at all appropriate levels, and contributes to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated Norwegian oil community that sets its sights both nationally and internationally; 8. that a state oil company be established, which can look after the government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests; 9. that a pattern of activities is selected north of the 62nd parallel, which reflects the special socio-political conditions prevailing in that part of the country; and 10. that large Norwegian petroleum discoveries could present new tasks for Norway’s foreign policy. 42 An excellent example of Norwegian petroleum policy imbued in the law is s 1-2 of the Petroleum Activities Act. 43 Commitment 54 related to keeping the ownership of the hydrocarbons and PEMEX on behalf of the nation; commitment 55 related to transforming PEMEX to a state productive enterprise; commitment 56 related to multiple exploration and production of hydrocarbons to maximize petroleum rent; commitment 57 related to competition in refinery, petrochemical and transportation of hydrocarbons; commitment 58 related to strengthening the National Hydrocarbon Commission; commitment 59 related to Pemex as a promoter of the national supply chain; and commitment 60 related to Pemex as an axis to fight climate change. 44 Ochoa (n 3). 45 See arts 25–27 of the constitutional amendment. 46 art 25 states that the public sector shall exclusively be in charge of those strategic areas established in art 28, para 4, of the Constitution. The federal government shall at all times keep ownership and control over agencies and public productive corporations that have been established. In the case of planning and control of the national power system, the public power transmission and distribution systems, as well as the exploration and exploitation of oil and other hydrocarbons, the nation shall be empowered to carry out those activities pursuant to paras 6 and 7 of art 27 of the Constitution. In the aforementioned cases, the law shall establish the rules concerning the administration, organization, functioning, procurement and other legal acts to be executed by the state-owned companies, as well as the remuneration regime for the personnel, in order to guarantee its efficiency, efficacy, honesty, productivity, transparency and accountability in accordance with best practices. The law shall also determine other activities that they may fulfill. Social and private sector enterprises will be supported and fostered under the criteria of social equity, productivity and sustainability, subject to the public interest and to the use of the productive resources for the general good, preserving them and the environment <https://www2.juridicas.unam.mx/constitucion-reordenada-consolidada/en/vigente> accessed 20 February 2018. 47 The economic rectory (leadership) of the state is contrary to the Liberal State, in which Adam Smith stated the ability of the market to self-regulate. Such opposition lies in terms of the state participating by setting principles and directives that shall rule the economic life, but in a balanced way without incurring in the total excessive control as socialist economies did, or even by the paternalist state that governed Mexico prior to the reform that incorporates the economic rectory principle. This can be translated as the ruling of good governance principles, public policies, regulation and institutions, although it is still a discretionary exercise of power. Martínez Martínez Jorge, Política Energética Sustentable in México (Editorial house Pórrua, UNAM 2017) 211. 48 art 27 establishes that the nation will exclusively carry out the planning and control of the national electric system, as well as the power transmission and distribution utilities. No concession shall be granted in these activities, notwithstanding the power of the state to execute contracts with private parties in accordance with the laws, which shall determine the ways in which private parties may participate in all other activities related to the electric power industry. In the case of petroleum and solid, liquid or gaseous hydrocarbons found underneath the surface, the nation’s domain will be inalienable and imprescriptible, and no concessions will be granted. In order to obtain revenue and contribute to the long-term development of the Nation, the state will explore and exploit oil and other hydrocarbons through assignments given to productive state-owned companies, or through contracts to be executed with them or private parties, in accordance with the law. To fulfill the purpose of said allocations and contracts, the productive state-owned companies may enter into contracts with private parties. In any event, subsoil hydrocarbons will remain property of the nation and will be expressed as such in the allocation and contracts (emphasis added) <https://www2.juridicas.unam.mx/constitucion-reordenada-consolidada/en/vigente> accessed 20 February 2018. 49 art 27 of the Mexican Constitution. 50 ibid. 51 Article 28 rules that the functions carried out exclusively by the State in the following economic strategic sectors shall not be considered monopolistic: planning and control of the national power system and the public power transmission and distribution systems; the exploration and exploitation of oil and other hydrocarbons, pursuant to paragraphs six and seven of Article 27 of the Constitution; as well as any other activity expressly determined by the laws issued by Congress. The State shall have a public trust entitled Mexican Oil Fund for Stabilization and Development, whose fiduciary agent shall be the Central Bank, that will be tasked, under the terms set forth by the laws, with receiving, managing and distributing revenues—taxes excluded—derived from allocations and contracts referred to in paragraph seven of Article 27 of the Constitution. The Executive Branch will have coordinated regulatory agencies for the energy sector, denominated the National Hydrocarbons Commission and the Energy Regulating Commission, in accordance with the terms set forth by the law (emphasis added) <https://www2.juridicas.unam.mx/constitucion-reordenada-consolidada/en/vigente> accessed 20 February 2018. 52 The transitionary articles relate to the following: (1) Term, (2) Labour rights, (3) State production entities, (4) Types of contract, (5) Accounting reports, (6) Preferential bidding processes, (7) Production chains, (8) Social interest and public order, (9) Procedures for awarding contracts and assignments, (10) Competence of decentralized government agencies and organisms, (11) The public electric energy transmission and distribution service, (12) Organization and functions of coordinated regulatory bodies, (13) NHC and ERC Commissioners, (14) Mexican Oil Fund for stabilization and development, (15) Oil fund technical committee, (16) Decrees for the creation of National Natural Gas Control and Electric Energy Control Centers, (17) Environmental protection, (18) The transition to clean fuels, (19) The National Industrial Security and Environmental protection agency, (20) The purpose, organization and functioning of State Production Entities and (21) Sanctions. 53 Elisabeth Eljuri and Daniel Johnston, ‘Mexico’s Energy Sector Reform’ (2014) 7(2) Journal of World Energy Law and Business 168. 54 The new energy Mexican constitution and its implementation, (2018) 2, <https://archivos.juridicas.unam.mx/www/bjv/libros/9/4319/16.pdf> accessed 21 February 2018. 55 National Hydrocarbon Commission Internal AdministrativeRegulation, art 13 s IVa,b,c,d,e, and f subsections. <http://www.diputados.gob.mx/LeyesBiblio/regla/n225.pdf> accessed 15 June 2018. 56 As the Hydrocarbon Law bill states, in its introductory section, ‘the oil production in Cantarell has declined to 2.5 million BOE/D in 2013 from 3.4 million BOE/D in 2004’. In other words, production has declined by one million of BOE/D in less than a decade. <http://cdn.reformaenergetica.gob.mx/1-ley-de-hidrocarburos.pdf> accessed 18 September 2018. 57 In Mexico the Mexican Central Bank manages the Mexican Oil Fund for Development. The Norwegian Pension Fund—Global (the name was changed from the Norwegian Petroleum Fund in 2012) is managed by Norges Bank, the Norwegian Central Bank. In Norway the goal of developing the petroleum resources for the good of the people is enshrined in ss 1and 2 of the Petroleum Activities Act 1996. 58 Elke Krahmann, ‘National, Regional, and Global Governance: One Phenomenon or Many?’ (2003) 9 Global Governance 323; Alejandro Ibarra-Yuñez, ‘Government vs Governance as a Framework to Analyze the MexicóS Energy Reform’ (2014) 5(1) Latin American Policy 115. 59 Ibarra-Yuñez, ibid 116–17. 60 Krahmann (n 58) argues that governance across levels of analysis can be defined as the fragmentation of political authority in seven dimensions: geographical, functions, resources, interests, norms (legal and implicit), decision-making and organization, and policy implementation. 61 Ibarra-Yuñez (n 58) 116. 62 ibid. 63 ibid 126 64 ibid. 65 ibid 127. 66 Farouk Al Kasim, The Relevance of the Norwegian Model to Developing Countries (NORAD Seminar: Oil for Development, 2006) <http://siteresources.worldbank.org/EXTNTFPSI/Resources/606764-1150299531473/FaroukAl-Kasim.pdf> accessed 2 January 2019. 67 As a consequence of Norway’s entry into the EEA, there was a requirement to comply with directive 94/22/EC on the conditions for the Granting and Using Authorisations for the Prospection, Exploration and Production of hydrocarbons (Hydrocarbon Directive), which required non-discriminatory criteria for the award of licenses. Prior to this Norwegian Companies were favoured and the grant of a license was subject to the use of Norwegian labour and suppliers. 68 art 25 of the Mexican constitution. 69 Ibarra-Yuñez (n 58) 126–27. 70 ibid 128. 71 State intervention for reasons of efficiency: regulation, finance, public production (direct participation) and income transfers (indirect participation). Modeling taken from Nicholas Barr, The Economics of the Welfare State (3rd edn, OUP 1993) 103. 72 Mexico and Norway strengthen bilateral relations and collaboration in energy and multilateral issues, see <https://www.gob.mx/presidencia/en/prensa/mexico-and-norway-strengthen-bilateral-relations-and-collaboration-in-energy-and-multilateral-issues?idiom=en> accessed 17 June 2018. 73 For a detailed consideration of the Norwegian state’s role in ownership, control and governance, see Tina Hunter, ‘The Role of the Regulatory Framework in Encouraging the Sustainable Extraction of Petroleum Resources in Australia and Norway’ (2012) OGEL <https://www.ogel.org/article.asp?key=3281> accessed 13 May 2018. 74 ‘An Industry for the Future—Norway’s Petroleum Activities’ (2010–2011) Storting White Paper 28, ch 1, 1. 75 ‘Petroleum Activity and Its Position in the Norwegian Society’ (1973–1974) Storting White Paper 25. 76 Storting White Paper (n 74) 2. 77 See text in n 67. 78 Norwegian Petroleum Directorate, Facts 2014 (2014) 55–56. 79 Storting White Paper (n 74).—. 80 For a consideration of Norwegian local content provisions, see Olivia Leskinen and others, ‘Norway Oil and Gas Cluster: A Story of Achieving Success Through Supplier Development’ (Harvard Business School, 2012); Erling Røed Larsen, ‘Escaping the Resources Curse and Dutch Disease? When and Why Norway Caught Up With and Forged Ahead of Its Neighbors’ (2006) 65(3) American Journal of Economics and Sociology 605; Ole Andreas engen, ‘The Development of the Norwegian Petroleum Innovation System: A Historical Overview’ (2007) TIK Working Paper on Innovation Studies No 20070605 <https://www.sv.uio.no/tik/InnoWP/EngenTIKpaper%20WPready.pdf> accessed 15 December 2018; Tina Hunter, ‘Law and Policy Frameworks for Local Content in the Development of Petroleum Resources: Norwegian and Australian Perspectives on Cross-Sectoral Linkages and Economic Diversification’ (2014) 27(2–3) Mineral Economics 115. 81 Particularly in the 1970s and 1980s. 82 Kenneth Dam, Oil Resources: Who Gets What How (Phoenix Books 1976) 4. 83 ch 11 of the previous NAFTA set out requirements for National Treatment, Most Favoured Nation treatment and non-discrimination. 84 ICSID Case No 2012 ARB(AP)/07/4 <https://www.italaw.com/cases/1225> accessed 15 December 2018. 85 The analysis of the royalty and taxation system are outside the scope of this article, and have been adeptly analysed elsewhere. 86 s 4-1 of the Norwegian Petroleum Activities Act 1996. This requirement was also contained in the 1985 Petroleum Act, s 20. 87 Tina Puntervold, Raed Ellouz and Tor Austrad, ‘Why is it Possible to Produce Oil from Ekofisk for Another 40 Years?’ (International Petroleum Technology Conference, Kuala Lumpur, Malaysia, 10–12 December 2014) <https://www.onepetro.org/conference-paper/IPTC-18116-MS> accessed 15 October 2018. 88 For a discussion of the Ekofisk field optimization under the ‘prudent production’ requirement see Tina Hunter, ‘The Role of Regulatory Frameworks and State Regulation in Optimizing the Extraction of Petroleum Resources: A Study of Australia and Norway’ (2014) 1 The Extractive Industries and Society 48, 52–53. 89 Kartick Gupta, ‘Are Oil and Gas Firms More Likely to Engage in Unethical Practices Than Other Firms?’ (2017) 100 Energy Policy 101; Juan M Ramirez-Cendrero and Ester Wirth, ‘Is the Norwegian Model Exportable to Combat Dutch Disease?’ (2016) 48 Resources Policy 85; Diderik Lund, ‘State Participation and Taxation in Norwegian Petroleum: Lessons for Others?’ (2014) 3 Energy Strategy Reviews 49. 90 Farouk Al-Kasim, Managing Petroleum Resources: The Norwegian Model in a Broad Perspective (Oxford Institute for Energy Studies 2006). 91 Storting White Paper (n 74). 92 The newly elected President has previously questioned the 2013 energy reforms: Energia16, ‘Mexico’s Energy Reform in Suspense if Lopez Obrador Becomes President’ (2018) <https://www.energia16.com/mexicos-energy-reform-in-suspense-if-lopez-obrador-becomes-president/?lang=en> accessed 14 December 2018; and ‘Mexico's Lopez Obrador Pushes Big Oil to Hurry, But Offers Little’ (Reuters, 16 October 2018) <https://www.reuters.com/article/us-mexico-oil-contracts/mexicos-lopez-obrador-pushes-big-oil-to-hurry-but-offers-little-idUSKCN1MQ0EY> accessed 14 December 2018. 93 Nacha Cattan and Eric Marten, ‘Mexico’s ALMO Takes Office with Attack on Energy Overhaul’ (Bloomberg, 1 December 2018) <https://www.bloomberg.com/news/articles/2018-12-01/lopez-obrador-takes-the-reins-in-mexico-vowing-a-transformation> accessed 2 February 2019. 94 This Article establishes the requirement to hold a professional degree in areas of law, administration, economics, accounting, engineering or matters related to the hydrocarbons industry, with at least 5 years’ experience at the time of the appointment and at least 10 years of experience necessary to fulfil the duties of PEMEX's board member. See for instance Richard Castillo, ‘ALMO’s Trio of Dubious Appointments’ (Pulse News Mexico, 31 July 2018) <https://pulsenewsmexico.com/2018/07/31/amlos-trio-of-dubious-appointments/> accessed 2 February 2019. 95 See <https://www.gob.mx/sener/articulos/presentacion-del-plan-nacional-para-la-produccion-de-hidrocarburos?idiom=es>; <http://www.pemex.com/nuestro-negocio/pep/producciondehidrocarburos/Paginas/default.aspx> and <https://lopezobrador.org.mx/?s=plan+nacional+de+producci%C3%B3n> accessed 31 January 2019. 96 Forbes, ‘ALMO Gives Oil Companies ‘Truce’ of 3 Years to Start Producing’ Forbes (5 December 2018) <https://www.forbes.com.mx/amlo-da-a-petroleras-tregua-de-3-anos-para-empezar-a-producir/> accessed 31 January 2019. 97 ibid. 98 See <https://www.excelsior.com.mx/comunidad/corte-avala-facultades-de-comision-de-derechos-humanos-de-cdmx/1262894>; <https://canaljudicial.mx/es/noticia/avala-scjn-articulo-de-la-constitucion-de-la-cdmx-que-define-integracion-del-congreso-local> and <https://eljuegodelacorte.nexos.com.mx/?p=8931> accessed 31 January 2019. 99 Unless the Mexican state had exerted its sovereignty by selecting oil fields on behalf of private participants, which could have been done when issued the Five-Year Plan of bidding for Exploration and Extraction of oil. To this extent, please refer to the immutability theory developed by Miguel A Marmolejo. 100 According to Transparency International’s Corruption Perception Index, Mexico ranks 135 out of 180 countries (where 1 is least corrupt and 180 is most corrupt), equal to Russia, Laos and Papua New Guinea. Transparency International, Corruption Perception Index <https://www.transparency.org/news/feature/corruption_perceptions_index_2017> accessed 12 December 2018. 101 See <http://gaceta.diputados.gob.mx/Gaceta/64/2019/ene/20190109-II.html#Iniciativa4> accessed 31 January 2019. © The Author(s) 2019. Published by Oxford University Press on behalf of the AIPN. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - State control in the aftermath of petroleum policy and governance reform in Mexico: capable of fulfilling constitutional objectives?
JF - Journal of World Energy Law and Business
DO - 10.1093/jwelb/jwz006
DA - 2019-04-01
UR - https://www.deepdyve.com/lp/oxford-university-press/state-control-in-the-aftermath-of-petroleum-policy-and-governance-BTLclWhubd
SP - 169
VL - 12
IS - 2
DP - DeepDyve
ER -