Long Anticipated Mexican Energy Reform Bill Passes
[Image: samlkelly – Flickr]
A few weeks ago, I posted about a proposed energy reform bill that would partially privatize the Mexican oil industry. You can find my previous post which gives some background on the history of the Mexican oil industry and the proposed changes here: http://blogs.terrapinn.com/total-asset/2013/11/12/reforming-mexican-oil-industry-private-equity-market-boom/
On December 12th 2013 congress gave the final level approval to the oil reform bill. This will end a 75-year monopoly of the state-run oil industry. The bill passed by a landslide, 353 to 134, allowing the oil industry to accept foreign investments. The bill will allow large private oil companies to enter into production-sharing agreements with Mexico. Despite winning by such a large margin, opposition to the bill was fierce. While proponents see this as a necessary step to revive the dwindling Mexican oil reserves, lawmaker Ricardo Monreal describes it as “the biggest robbery of the millennium”. One representative made headlines by addressing congress in nothing but a pair of briefs, a metaphor for how Mexico is being “stripped of its wealth and dignity” by this bill.
This reform has been expected to bring billions of dollars of investments from private oil companies and boost currency value and stock prices. In January, when it became more obvious that this bill was going to pass, the local IPC stock index reached a record high. However, investors began to note the comparatively high price of Mexican stocks in comparison to those in other similar emerging markets. It also became apparent that this bill would probably take a few years to have any real economic effects. Because of this, very few listed companies are expected to receive any direct benefit from this reform in the immediate future. That being said, the bill is still bringing a lot of positive attention to Mexico from investors because of its long term value.