of the Mexican Petroleum Industry (AMIPE) – Erik Legorreta, President
The president and founder of the Association of the Mexican Petroleum Industry (AMIPE) discusses the industry’s participation in the recent reform process, and his ambitions for local firms in this new era of Mexican energy.
We’ve seen your name in the news a lot recently, especially regarding your role in influencing the secondary legislation that addressed the budgetary autonomy of Pemex. Could you tell us a bit more about AMIPE’s role in the reform process?
We have very active since the recent reforms began, and have had a significant presence in the media throughout the entire process. Our goal was to promote the ideas and needs of our members by shedding some light on a variety of issues that, in the past, had been hidden by Pemex’s lack of transparency. By discussing some of the issues that our members were facing in a positive way, and gaining some coverage in the press, we were able to draw political attention away from the implications for consumers and refocus it on the needs of our members.
In terms of actual legislative influence, there were eight points that we lobbied for, and in the end a few of them made it into the reform package in some form. The two most important policies we promoted were our minimum national content requirements, and budgetary autonomy for Pemex. We also managed to get a clause added that calls for the establishment of a committee composed of industry representatives that will work with the Ministry of Economy.
Our primary objective was to ensure the legislation would encourage mutually beneficial joint ventures between Mexican and foreign firms. Part of what we advocated for was a minimum national investment content of five to ten percent, which we hoped would motivate foreign investors to invite their local partners to take a financial stake in the project, which would allow Mexican firms to better represent their interests by being involved as partial owners. Unfortunately, this proposal didn’t make it into the reform package, but the broader requirements for national content in terms of labor and materials did. Now we are supporting a separate “national industrial promotion” law that will allow local industry committees to help establish the rules of how they will operate alongside foreign partners. We still have quite a bit of work to do on this front, but I believe it would be very beneficial to small local firms and large foreign companies.
What was your motivation behind founding AMIPE, and your goals for the organization at present?
In Mexico, as around the world, the energy industry is highly specialized and before AMIPE, there wasn’t a chamber of commerce or association that specifically aggregated the concerns and addressed the needs of companies and people in the industry. Many of our members were involved in other associations based on their function, construction companies joining the construction association for example, but there was no unifying voice for all the firms operating across the oil and gas value chain. So, ten years ago we informally established AMIPE to fill this void, and five years ago we legally established it as an association. While our members perform a wide variety of functions, they all have quite a lot in common due to their involvement in the Energy industry.
And how do you think the smaller members will have to change to survive and grow in this new environment?
We are encouraging local firms to form consortia, so that they are able to take on larger projects. Luckily, there is a precedent for it in the sector as the industry was developed by Mexican firms who worked with foreign partners to bring more advanced technologies into the country. However, regardless of a company’s past relationships with foreign partners, collaborating this closely with local businesses, some of which have been competitors in the past, requires a significant shift in mentality. Changing this mindset has been difficult, but we are making some progress; so far we’ve helped to put together a few such groups of three or four smaller firms, and by working together they’ve been able to participate in business that they wouldn’t be able to on their own. Going forward, I think AMIPE will play a critical role in this process. One of my goals for the association will be to help promote joint ventures between foreign and local companies, and to help make sure that Mexican firms are properly represented in the ownership of future projects.
Pemex has enjoyed a monopoly for over three quarters of a century. To what extent do you think they will be able to transform themselves into a productive, profitable enterprise?
Well, to a large extent that’s up to Pemex, and whatever goals they set for themselves. The big international oil companies that will develop Mexico’s deepwater resources aren’t going to want to do it alone. As we’ve seen in Brazil and other countries, they usually seek to associate with the national oil company so they can benefit from their local infrastructure, relationships, and knowledge. Obviously Pemex will profit from such partnerships, so regardless of the success of their internal reforms they will benefit from foreign participation in the industry. The downside of this is that since they won’t have to reform to survive, they may not change as much as some might hope.
Do you think the Mexican industry is ready to meet the standards of the international industry?
Yes, I think that Mexican companies are ready. There are a lot of companies that are already ready and excited to work with foreign companies, and those that worked extensively with Pemex in the past certainly have the size and experience to work with a large integrated oil firm. In fact, one of the things we are looking forward to in the post-reform industry is the stability that foreign firms will bring. Working with Pemex alone caused a lot of instability, since their purchasing and sub-contracting varied widely from year to year, and with multiple oil majors in the market their variations will cancel each other out to some extent, allowing smaller firms to plan ahead with more confidence.
Do you think that there is enough Mexican talent to meet the demand that will be created by the upcoming foreign investment?
There is a lot of talent in Mexico already, and the demand for them is going to grow a lot in the foreseeable future. The universities will have to promote the right programs and such to train more skilled workers, and I’m confident that they are up to the task. Unfortunately, things have changed very rapidly; it’s only been a year and a half since the president took office and the reform process only began in earnest a year ago, so it may take the universities two or three years to catch up. In the mean time hopefully some Mexicans who are working abroad will come back to be closer to home once more job opportunities here are created. Also, once the international oil majors start to compete for talent with Pemex we will certainly see a substantial increase in salaries, and that should also help attract talent to the industry.
As the president of AMIPE, what message would you like to give to our international readers and investors looking at the Mexican market?
The first thing I’d like to say is that the Mexican industry is ready to welcome foreign companies and to help them develop new opportunities. I would encourage international companies to engage local companies in partnerships, as they will be able to help them enter the market faster and more efficiently than they would be able to alone. Also, I think that there is a lot of potential in Mexican businesses that they will be able to help unlock, and it would be a mistake to not leverage that opportunity.