FRANCISCO XAVIER SALAZAR

Mexico 2020 | GREEN ECONOMY | INTERVIEW

Despite the current climate, ENIX has identified opportunities both in electricity and hydrocarbons and is accordingly focusing its efforts.

Francisco Xavier Salazar
BIOGRAPHY

Francisco Xavier Salazar is a chemical engineer with a master's in economics and public finance with a specialty in global markets from the London School of Economics & Political Science. He was previously chairman of the Energy Regulatory Commission (CRE) and president of the Mexican Chapter of the World Energy Council.

What have been the greatest recent advancements in the Mexican energy sector?
There have been little advancements. Unfortunately, there is still confusion and uncertainty over the role the government would like the private sector to play as part of its energy policy. The only thing that is clear so far is that the government wants to strengthen the state-owned companies, Pemex and CFE. Besides that, there have been contradictory messages in terms of where the private sector would be welcome. A necessary condition for any kind of advancement is that the government has to be clear on this regard.

What role does the government want the private sector to have?
In general terms, it seems to me that it is a marginal role, a complement to what Pemex and CFE cannot—or do not want to—do. However, the current economic crisis will probably put great pressure on the government, up to the point it recognizes it will not be possible to have a vibrant and dynamic sector with CFE and Pemex alone, more so now that it is more difficult for it to obtain funds and given its limited budget. On the contrary, there is a private sector that, although suffering from the economic crisis, has other resources that the government does not. I hope there will be a change and a different message from the government, inviting the private sector to invest in the industry.

Will one of the positive things of these developments be the government looking to the private sector for production in the industry?
That should definitely happen as there are no options. This crisis has some implications in terms of fiscal policy, and the government will have to use its resources to attend to the crisis and help small businesses that have been and will be affected. All these resources will have to be redirected to these activities and issues, and the government may have to reduce taxes or give tax rebates. That means there will be a smaller budget and less resources for CFE and Pemex. If the government does not have those sources, the only source is the private sector. Reality will sink in, and the government will have to be more pragmatic. The announcement to be made by the government—which has been delayed—on investments in the energy sector done by the private sector will be even more relevant. That should be a signal that the government is really changing its thoughts on how to interact in this industry.

What should Pemex do in terms of its existing debt to emerge from its current financial crisis?
Pemex will have to redirect its small amount of resources, as one of our problems is that the budget is in pesos. With the depreciation of the peso, Pemex will have fewer resources to invest, and it has to focus on those activities with the highest returns, like the production of oil in shallow water or fields where the cost of extraction is low, instead of investing in new projects where the cost of production is higher. The government should redirect resources for the new refinery to other activities that are more profitable. Pemex should go with farm outs wherever it can in order to develop the resources without having to compromise its budget. That is definitely another option that will have to be evaluated by the government in the short term.

How do you help your clients prepare for possible emerging opportunities?
We do several things, but under the current circumstances we start by helping them navigate the adverse environment of changes in regulations. At the same time, we have identified opportunities that remain available independently of the circumstances both in the electricity and hydrocarbons sectors. It is those areas in which we are focusing our efforts.