Development: On 13 August Mexico’s President-elect Andrés Manuel López Obrador defended his government’s proposed development plans for the national oil sector and said that they would not saddle Mexico with huge debts.
Significance: López Obrador, who assumes office on 1 December, has proposed to invest M$175bn (US$9.1bn) in overhauling the six existing oil refineries owned by the state-run oil firm Pemex and to build two new refineries in order boost petrol fuel production in the country. The president-elect claims that this will help to make Mexico less dependent on refined fuel imports and help to shore up the national oil industry, as well create jobs and boost domestic economic activity. But López Obrador’s proposals have come under criticism from local analysts who say that they would only lead to the federal government and Pemex incurring significant debts.
- Since López Obrador and his government’s transition team presented their proposals for the national oil sector last month, they have been criticised by local economists and energy sector analysts. In particular they have warned against spending large amounts of money to build new refineries at a time when national crude production remains low. The critics also point out that Pemex’s existing refineries continue to suffer efficiency problems and are currently operating at a loss; and that importing refined fuels as Pemex has been doing in recent years currently represents the cheaper option to ensure supply.
- López Obrador addressed some of these criticisms during a press conference yesterday. The president-elect said that his administration would not have to become heavily indebted in order to fund its oil sector development plans as it should have sufficient resources for this. López Obrador said that his government has already budgeted M$50bn for its plans to overhaul the existing Pemex refineries and M$160bn for the first new refinery. He insisted that these funds should be enough because “there will be no corruption and no waste”. López Obrador has previously said that his administration will implement a ‘republican austerity plan’ that would seek to significantly reduce wasteful federal government spending and that would free up more resources for priority projects.
- López Obrador also replied to the concerns that his plans do not address Pemex’s falling production levels. The president-elect said that his plan contemplates investing M$75bn to promote oil exploration and exploitation efforts. Once again López Obrador said that this allocation should be enough to help increase crude oil production as his administration will seek to spend more efficiently.
Looking Ahead: López Obrador’s oil sector proposals will continue to be scrutinised until December. The onus is on López Obrador and his transition team to convince the sector that the proposals will succeed in reviving the oil sector and not exacerbate its decline.
