Mexico’s lead opposition party wants to incorporate more flexible national content rules than the government proposed as congress debates additional bills to the landmark oil law passed last year, an opposition senator said.
The National Action Party, or PAN, wants Mexico’s energy regulator to have the ability to adjust local content laws that will determine the amount of Mexican companies’ involvement in new energy projects, Jorge Luis Lavalle, a top negotiator on oil reform and member of the senate’s energy committee, said in a phone interview. The minimum national content proposed by the government in the secondary legislation on April 30 would guarantee at least a 25 percent average for Mexican participation by 2025.
“The wording should be left with certain flexibility so that depending on the field and type of contract, the National Hydrocarbons Commission can determine the percentage, or the type of national content,” Lavalle said. The National Hydrocarbons Commission, or CNH, is Mexico’s oil regulatory body.
The peso appreciated 0.2 percent to 12.8816 per dollar at 11:44 a.m. in Mexico City. News of the PAN’s position on national content likely helped strengthen the currency, Alejandro Silva, a founding partner at Chicago-based Silva Capital Management LLC, said in an e-mail.
Mexico ended Petroleos Mexicanos’s 75-year state-run oil monopoly last year when President Enrique Pena Nieto signed a law to allow for private investment in the energy industry. Secondary legislation to the law proposed to congress last month may be approved by June, according to legislators from Pena Nieto’s Institutional Revolutionary Party, or PRI.
Mexico’s secondary legislation should be “broadened” and the CNH should be allowed to adapt local content levels that take into account Pemex’s lack of experience in deep-water fields and expertise in shallow waters, Lavalle said. The PAN seeks to “guarantee that national content represents an incentive for the industry and not a barrier, as occurred in Brazil,” he said.
In Brazil, a deficit of manufacturers and shipyards made it slower and more expensive to supply large projects with locally made equipment. The country’s oil regulator has fined producers including Petroleo Brasileiro SA (PETR4) and Royal Dutch Shell (RDSA) Plc for failing to meet local content requirements.
Brazil’s minimum local content requirements vary from contract to contract. At Libra, the most recent field awarded by Brazil’s oil regulator, or ANP, Petrobras and its partners need to use a minimum 37 percent local content during exploration and 55 percent during development.
The PAN is reviewing clauses in the secondary legislation that would allot Pemex as much as 30 percent participation in certain oil fields, Lavalle says. The party wants to avoid “uncertainty for players in the sector,” he said.
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