Guillermo Pineda, Energy Industry Leader, PwC Mexico
“Mexico will certainly grow to become an increasingly integral player in the international energy arena, especially when taking into account the technologies and resources needed to unlock the country’s unconventional resources.” Guillermo Pineda, Energy Industry Leader, PwC Mexico.
PwC is a multinational professional services firm and is the world’s second largest professional services firm measured by 2013 revenues. As the industry leader for the energy division, what is the scope of your Mexican based services in your sector?
Over the past two decades, I have been heading the firm’s energy business. At the beginning of that period, business opportunities were few and far between due to the limitations set forth by the constitution. However, at the turn of the century, we began reassessing local opportunities in accordance with our firms’ competencies. On one occasion, we identified the opportunity to introduce multi-services contracts that would help to explore and exploit natural gas resources in the bogus basin in the North of Mexico. We coordinated the implementation of these contracts as a means to increase the production of natural gas. Unfortunately however, because of resistance from a political figure claiming the unconstitutionality of these contracts, we achieved only limited success, assigning only half of the originally intended dozen blocks.
Nevertheless, at its essence, this demonstrates our commitment to seeking out market opportunities and introducing them to Mexico. In addition to this, we also participated in promoting the 2008 Mexican energy reforms, which incidentally also achieved limited success as a result of political pressures. Still, during the election campaigns of various candidates, we held several discussions with the various parties explaining global energy trends while advising the benefits of energy reforms in Mexico. We promoted these reforms through the various chambers of commerce and industry associations, of which I am a member, including the American and British Chambers of Commerce, the Mexican Energy Association (AME) and the Mexican Association of Petroleum Suppliers (AMESPAC), among others.
As illustrated by our level of involvement, PwC in Mexico is the only professional services firm among the Big Four to have such an active level of participation in the domestic energy industry. This is why we are celebrating the energy reforms that are set to transform Mexico’s industry and are well aware of the full range of benefits they are poised to bring for the country.
Is this to say that PwC in Mexico is more focused on serving the public sector, as opposed to the private sector?
On a global level, PwC has a history of being the partner of choice for the industry’s largest players, including most international oil companies, national oil companies and integrated oil and gas service companies (international or local), among others. Naturally, we also cater to the local subsidiaries of these giants in Mexico and have been able to amass a wealth of experience in doing so.
In ensuring the perpetual expansion of our knowledge base, we are consistently receiving invitations to participate in training seminars at our Houston offices on technical and academic matters, as well as a number of advisory services. Moreover, I have also developed a close relationship with our US offices over the past two years, with the intention of gaining their support whenever the opportunity arises. Given the opportunities brought about by the reforms, we have expanded this support network to include Canada, the US, Colombia, Mexico, Peru, Argentina and Brazil. This enables us to share our local knowledge across the region and leverage our resources, allowing us to quickly and effectively cater to our clients’ needs across the energy, mining, finance and infrastructure sectors.
Turning to the local industry, how are these reforms any different from the 2008 reforms that were widely received with disappointment?
Ultimately, the key difference here is that all of the past reforms suffered from political debate. The Institutional Revolutionary tea Party (PRI), the current political party, until now has not pursued such reforms because they knew the importance of Energy in our economy. In fact, this is precisely what happened when the National Action Party (PAN) won the 2000 elections. As a right political party, they promoted such reforms as supporters of entrepreneurialism and commercial liberalism. The then president, Mr. Vicente Fox (2000 – 2006), attempted to transform Pemex and suggested the institution of business-minded people to its board of directors.
Felipe Calderón, the subsequent PAN President elect (2006 – 2012) and previous Secretary of Energy, also recognized the importance of reforms for the benefit of the sector and country and attempted to promote that. Concurrently, Francisco Labastida, the then Sinaloa State Senator for the PRI, was also looking to expand his knowledge on the global energy sector, visiting many countries on that matter, and also recognized the benefits of the liberalization of the energy sector. Having personally spoken to him on the matter, he demonstrated his support for this change and was prepared to support the 2008 reforms.
In the last election round of 2012, three of the most influential political parties presented the reforms as a means to increase the economic performance of the country. This paved the way for an open platform for dialogue, evaluating the potential participation of private investors, local or foreign, in which they ultimately concurred. This was the seed that saw the fruition of the opportunity for comprehensive reforms. The only thing needed now was an unwavering frontrunner to take this forward, and President Enrique Peña Nieto proved to be that man. In addition to this, the other political parties chose not to oppose these reforms, in favor of ensuring a brighter future for Mexico. In my personal opinion, I find the PAN’s actions highly admirable because they were the first to pioneer these reforms, despite not being fully successful.
In part, the reforms were driven by the need for further investment capital that Pemex could not cope with alone. With an estimated need for $60billion of capital to develop the market over the short term, $40 of which is expected to come from internationals, to what extent is Mexico’s financial sector prepared to handle these investments in a thus far relatively unknown market?
This issue primarily applies to the SME’s in the industry. That is, international oil companies can easily tap into their corporate offices or access international financial markets to raise the capital that they need. The same applies to the multinational integrated service providers.
Nevertheless, there are a number of financial institutions that are developing different programs for this sort of projects. The fact of the matter is, since these institutions are still in the beginning stages of this learning curve, the financing costs of such projects will tend to be higher given the higher levels of risk they have to assume. However, as they gain experience in the field, these costs will naturally decline.
How will these reforms impact Mexico’s positioning in the global energy map over the long term?
Mexico will certainly grow to become an increasingly integral player in the international energy arena, especially when taking into account the technologies and resources needed to unlock the country’s unconventional resources.
Perhaps more interestingly however, if we were to look at the North American Sustainable and Efficient Energy region—Canada, the US and Mexico—I believe we can rival, or mimic, the production levels observed in the Middle East right now over the medium to long term. The technological advancements, along with the right regulatory environments, will truly allow the North American region to undergo an energy revolution and Mexico is an integral component of that. Admittedly, Mexico is lagging behind our regional counterparts, but as the saying goes, better late than never.
As industry leader for the energy industry in such exciting times for the country, what are your ambitions for your team and firm as a whole and how would you like to position PwC therein?
I would like to strengthen our firm’s positioning across all the areas of operation in the energy business while exploring all potential opportunities. I cannot stress enough the extent of emerging opportunities that will result from the implementation of the energy reforms—so much so that it is becoming challenging for me to convince my partners to invest enough in our segment to ensure we are able to capture these!
For instance, one area we will be looking at is the potential consolidation of Pemex’s subsidiaries, which is intended to streamline the company’s overall operations. If this materializes, a firm like PwC will be ideally positioned to support the Energy Sector, including the Energy Ministry, the State Productive Entities (PEMEX and CFE) and the regulatory entities, the National Hidrocarbon Commission (Oil & Gas) and the Energy Regulatory Commission (Utilities and Electricity). Another golden opportunity for us will be the restructuring of the oil-giants corporate governance model, a core competence of PwC. Furthermore, as Pemex’s looks to streamline its processes, it will have to re-examine all of its processes, from contracting supplier to contract formulation. Again, this is an area where PwC can generate tremendous value for its clients and we intend to position ourselves there as well when the opportunity arises.
PwC is also very strong in the advisory, audit and tax, and legal side of the business. As mentioned, we have worked with some of the world’s largest international and national oil companies, gaining a wealth of experience and reputation there. Since the limitations of Mexico’s constitution have limited our ability to develop our business in the country, we have so far not been able to introduce the full capacity and scope of these services here because of the past limitation in this sector; however, with the liberalization of the market, we are highly optimistic about PwC’s future in Mexico.