Macario Schettino, an author, journalist, and Professor of Humanities at Mexico’s highy regarded ITESM (Instituto Tecnologico y de Estudios Superiores de Monterrey), wrote a keen op-ed on the recent energy reforms in the October 27, 2008 edition of El Universal, excerpts of which were aptly translated and posted by Patrick Corcoran on his Gancho Blog and follow below:

Today Pemex is reformed. Not energy nor oil, just the company. That is to say that to resolve a problem its cause is strengthened. Suffice it to say that it is an absurd solution. The believers in the myth will insist that only this way can the nation of the Revolution continue existing. The optimists will see in the reform the success of negotiation, a show of the reliable politicians’ capacity. From outside of the myth of self-satisfaction, the size of the error is evident. We have been caricature of a country for so long, like so many Latin American nations. Once again, only Argentina exceeds our self-destructive enthusiasm: its government has plundered for the second time the savings of its country. And part of the population celebrates it, as here part of the political class celebrates the reform.

Mexico has never been an oil-producing power, but rather only because of Cantarell, which is running out irremissibly. We never managed to construct a national oil industry, despite our production and our being neighbors of the country that has produced the most oil in history. Pemex is an inefficient company that occupies at least three times more staff than required, a sinkhole of corruption, and that now will reduce its payments to the government, appropriating more oil-based profits. But even if it kept all the profits, it wouldn’t be enough to explore deep water, which is the type of investment that must be made. Where did Mexico come out ahead?

Following seven months of intense debate and surrounded by protesters gathered outside the Congress, Mexico’s Chamber of Deputies (Camara de Diputados) yesterday approved certain changes to Mexico’s energy law regime, according to a report in El Economista. The changes, which were approved by the Senate last week, must be signed by President Felipe Calderon before they will become law, but receipt of his imprimatur is all but certain.

Nearly all analysts agree that the amendments, which could have been a great opportunity for Mexico to enact expansive reform to its energy sector and root out inefficiencies at Pemex, are a major disappointment.

The following is a summary of a few of the significant aspects of the new energy law regime, as set forth in the report:

Laws Under Article 27 of the Constitution

• Blanket prohibition on private sector participation in strategic areas of the hidrocarbons sector, such as refining of oil and gas and construction of pipelines and storage plants.
• Allows Pemex to enter into contracts with private sector participants for projects or services provided Pemex does not grant any rights to such participants relating to ownership of hidrocarbons.
• Prohibits Pemex from entering into contracts with private sector participants that permit or require Pemex to share a percentage of production or the profits of Pemex or which include rights of preference or shared production (i.e., risk-sharing arrangements).
• Prohibits Pemex from agreeing to submit itself to the jurisdiction of foreign courts in project or services contracts performed in Mexico and entered into with foreign contracting parties, but allows Pemex to submit itself to the jurisdiction of arbitral tribunals pursuant to international agreements to which Mexico is a party.

Amendments to the Law of the Energy Regulatory Commission (Comision Reguladora de Energia - CRE)

• Grants the Energy Regulatory Commission (CRE) technical, operative, and management control over regulation of the gas and electricity sectors.
• Allows for the CRE’s participation in the generation and cogeneration of electricity through renewable energy sources, as well as the establishment of financing the same, including electricity generation by wind, solar, geothermal, and water sources.

Law for the Sustainable Exploitation of Energy (Ley para el Aprovechamiento Sustentable de la Energia)

• Provides for sanctions by fine for those who import, distribute, or sell electrial equipment or devices that provide false or incomplete information to consumers.
• Creates the National Program for the Sustainable Exploitation of Energy and the National Commission for Energy Efficiency.

Amendments to the Law of the National Hidrocarbons Commission (Ley de la Comision Nacional de Hidrocarburos)

• Approves the Law of the Energy Regulatory Commission (CRE), which expands and increases the regulatory and oversight activities of the CRE.

Law for the Exploitation of Renewable Energy

• Establishes the System of Energy Sustainability.

Pemex Law

• Prohibits the privatization of Pemex.

Controladora Comercial Mexicana (MXK: COMERCIUBC) (frequently called La Comer in Mexico) filed a new petition for bankruptcy protection (concurso mercantil) under Mexican law after the court rejected its first petition, which was filed on October 9, 2008, according to a report in El Economista. 

The company said in the report that it is invoking its rights under the Mexico’s Business Reorganization Law (Ley de Concursos Mercantiles) and has therefore suspended the payment of all of its financial obligations. 

It is not clear why Comercial Mexicana’s original bankruptcy petition was rejected, but it is possible that the rejection was based on a technicality and that the court will accept the company’s new petition.  Article 20 of the Business Reorganization Law contains the specific requirements that a petition for bankruptcy protection must contain under the statute, which include, among other things, the audited financial statements of the petitioner for the three years preceding the filing of the petition, a list of creditors and debtors of the petitioner and their names and addresses, the maturities of all debts of the petitioner, and an inventory of all assets of the petitioner.

Gruma, S.A.B. (NYSE: GMK), the world’s leading flour manufacturer, affirmed today that its MX$2.8 billion (US$168 million) loss during the third quarter of 2008 was linked to losses on exchange rate derivative instruments, according to a report in El Economista. 

Gruma specified that the losses were caused by a 1,805% increase in the company’s cost of financing, which was “the result of unrealized losses on exchange rate derivative instruments representing a virtual fair market value loss of US$291 million.”  This loss sharply contrasts to Gruma’s profit of MX$799 million (US$76 million) for the third quarter of 2007. 

At the close of September 2008, the report said that Gruma’s total debt was US$772 million.  The company’s financial issues could have ripple effects world-wide: Gruma has 19,000 employees, 91 plants, and sells its products in 50 countries, including the U.S. Mexico, Venezuela, and Australia, as well as in Central America, Europe, and Asia.

George Baker, the author of the Energia.com and a management consultant who advises companies in the oil and gas, power, and chemical industries, has commented extensively on Mexico’s recent energy reforms. 

His insightful comments regarding the Pemex Administration Act of 2008, which include the recent reforms to Mexico’s oil and gas laws, are available here.

A Mexico City judge rejected the petition of Mexico’s third-largest retailer Controladora Comercial Mexicana (CCM) for bankruptcy protection (concurso mercantil), which would have allowed it to renegotiate the terms of its debt with creditors, according to a report in El Economista.

The report said CCM will file a new petition in the next few hours.

Jeremy Schwartz’s Uncovering Mexico Blog has a nice post cataloging his foreign press corps visit with Carlos Slim, an excerpt of which is set forth below:

The talk, which perhaps naturally focused on the financial crisis gripping the U.S., was mostly pleasant, although Slim did get testy when pressed about his personal wealth and monopolistic practices. Here are some highlights:

—Slim urged more flexibility and creativity in dealing with homeowners facing foreclosure, suggesting temporary, interest-only loans as an alternative to seizing a home. “There need to be solutions…that aren’t total punishment,” he said.

—There was much curiosity about Slim’s recent purchase of 6.4 percent of the New York Times’ stock. Many of the ink-stained wretches wondered what Slim saw in newspapers at a time when the industry is suffering through its own crisis. Slim, much to our relief, argued that there will always be a need for quality content regardless of the packaging. “It’s an evolution,” he said of the newspaper business. “The ones that don’t evolve will disappear.”

—Slim took umbrage to any suggestion that his companies were bad for Mexico, lashing out at one reporter: “To think that in poor countries there shouldn’t be strong companies is perverse,” he said. “Why should foreign companies (be the only ones that prosper)…The ideal would be that there were more companies like this.”

—He also turned the tables when asked about monopolistic practices, complaining that Mexican regulators won’t let him run video over phone lines as part of a so-called Triple Play of cable, telephone and Internet service. On the other hand, cable and other phone companies have accused Telmex of charging outrageously high connection costs to hook up to its monolithic network, forcing many would-be fixed line providers out of the market.

President Felipe Calderon has signed into law a bill to ban the capture and export of Mexican wild parrots, according to a report by Defenders of Wildlife.

The report said that Mexico is home to 22 species of parrots and macaws, of which six are found nowhere else in the world, and that 90 pecent of Mexican parrots and macaws are in some manner at risk.

Mexican retailer Coppel, S.A. de C.V. (MXK: ALMACO) and cement holding company Cemex, S.A.B. de C.V. (NYSE: CX) announced last week that they have placed short-term debt backed by government guarantees issued by Mexican development banks Bancomext (Banco Nacional de Comercio Exterior) and Nacional Financiera, according to a Guardian report.

The guarantees have enabled the companies to roll over commercial paper amid the turmoil in the credit markets. 

The report also said that Monterrey-based supermarket chain, Organizacion Soriana, S.A. de C.V. (MXK: SORIANB), had recently been downgraded by Moody’s on concerns it depends too much on commercial paper.  In addition to its Soriana and other branded multi-format stores, Soriana indirectly controls Gigante, S.A. de C.V., which operates 198 stores in Mexico and the U.S. under the Gigante, Bodega Gigange, and Super G brands.

Mexico’s upper house of Congress approved the following amendments to laws governing the country’s oil sector on Thursday, October 23, 2008, according to a Financial Times report:

• Four independent members added to Pemex’s 11-person board of directors;
• Pemex may hire private sector oil/gas exploration and production companies; and
• Pemex may pay oil/gas production bonuses to private sector companies (i.e., incentivized services agreements).

Regretably, the amendments do not permit private sector involvement in the building or ownership of refineries or in areas of oil transportation nor do they permit Pemex to enter into oil/gas production-sharing contracts with private sector.

Although the addition of independent directors to Pemex’s board and the allowance of payment of production bonuses to private sector companies is a positive development, the reforms fall well short of what was hoped for by the Calderon administration and foreign investors.