Download Diapositiva 1

Energy policy &
infrastructure
Guillermo Zúñiga, National Commissioner
Energy Regulatory Commission
May, 2013
Key messages

Mexico can achieve higher competitiveness by fostering public
policies oriented to the introduction of competition in energy
markets

The main pillar of in-depth energy reform lies in the improvement
of market structures

Competition policy has a positive impact in how a country develops
its infrastructure

Further sector-wide procompetitive efforts in energy must be
carried out to develop infrastructure.
Mexico faces the burden of being perceived
as an inefficient and crony economy…
"There are three 'economic Mexicos'. The first one is under the old control style of government. The
second is the Mexico of vested interests, with power groups and firms that seek to capture rents from
domestic consumers, mainly due to lack of domestic or international competition. The third one is a
modern and progressive Mexico. This Mexico blossomed with NAFTA and still has great potential, but it is
forced to pay rents to the other two 'Mexicos‘."
“Mexico still faces persistent structural challenges that will need to be addressed in order to continue
improving the competitive edge of the economy. The lack of effective competition, especially in some key
strategic sectors, also hinders the efficient allocation of resources that spills over into most sectors of the
economy.”
“Every nation has its big tycoons, but to a rare degree Mexico is owned by them. Cornered markets mean
the oligopolists have little incentive to invest and innovate: domestic productivity growth has been virtually
stagnant since the financial crisis of 1994. If competition increases and undermines the abnormally high
profit margins of the large companies, that could lower consumer prices, raise overall productivity, and
boost the country’s growth potential.”
“If you’re a Mexican entrepreneur, entry barriers will play a crucial role at every stage of your career. These
barriers can be either insurmountable, keeping you out of lucrative areas, or your greatest friend, keeping
your competitors at bay. The difference between the two scenarios is of course whom you know and whom
you can influence – and yes, whom you can bribe.”
"The lack of competition and excessive regulation have represented a burden to the Mexican economy for
several years and has contributed to great income disparities. The product market regulation in Mexico is
among the most restrictive and it obstaculizes competition. This, in consequence, reduces productivity and
puts a brake in economic growth."
Sources: Claudio Loser y Harinder Kohli (coords.), Futuro para todos: acciones inmediatas para México, p. 48-49; Foro Económico Mundial, The global competitiveness report 2012-2013, p. 33;
3
Ruchir Sharma, Breakout Nations, 2012, p. 73-83; Daron Acemoglu y James A. Robinson, Why nations fail: The origins of power, prosperity, and poverty, p. 39, 396;
OCDE, México: Mejores políticas para un desarrollo incluyente, p. 44
… situation that has been analized
throughly by expert economists
Main policies that could foster investment in México
Survey carried out by asking expert economist of the private sector
Mobile average (six months)
25
Fiscal Reform
20
Energy Reform
Labor Reform
Public Security
Competition and regulation
15
10
Law Enforcement
Infrastructure
Macroeconomic stability
5
Jun-12
Feb-12
Oct-11
Jun-11
Feb-11
Oct-10
Jun-10
Feb-10
Oct-09
Jun-09
Feb-09
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Jun-05
Feb-05
Oct-04
Jun-04
0
Fuente: Banco de México, Encuestas sobre las expectativas de los especialistas en economía del sector privado 2003-2012
44
Increasing agreement that lack of
competition distorts economic sectors
Regulatory restrictions
Concentration in selected sectors, 2010
Herfindahl-Hirschmann Index
Constitutional restraint
Oil Production
Constitutional restraint
Electricity Generation
Underuse of spectrum
Closed to FDI, local barriers
Telecommunications
Local regulatory restraints
Construction
4025
1858
2233
1297
1721
1147
Mexico
1684
1445
Banking
Perfect
competition
5994
1059
Road transportation
Travel by Air
6382
3043
Media
Slots, closed skies
Inequal access to switches, ratings
7445
363
EXAMPLES
Weak regulator
10000
1358
0
2000
USA
4000
6000
8000
Most of these sectors require large investments in
infrastructure
Source: CIDAC, ¿Qué tan abierta es en realidad la economía mexicana? (data); CFC analysis (restrictions)
10000 Monopoly
5
Key messages

Mexico can achieve higher competitiveness by fostering public
policies oriented to the introduction of competition in energy
markets

The main pillar of in-depth energy reform lies in the improvement
of energy market structures through competition.

Competition policy has a positive impact in how a country develops
its infrastructure

Further sector-wide procompetitive efforts in energy must be
carried out to develop infrastructure.
Market Structure: description
• Oil and Gas
– State exclusivity over “oil industry”: it covers all upstream
activities as well as downstream activities linked to oil and
gas.
– Private investment has been allowed only to storage,
transport, distribution and sales of natural gas and LPG.
– The prevailing market structures are vertically integrated
monopolies.
Market Structure:
associated problems
• Oil and Gas
– Exclusivity of state through only one operator leads to restrictions in
terms of:
•
•
•
•
Investment
Execution capacity
Access to new technologies
Development of activities which are less profitable than oil
– These restrictions maximize risk to State and Society
– The absence of potential competition:
• Reduces Mexico’s competitiveness
• Generates inefficiencies and waste of resources
• Limits the growth of state-owned company due to lack of incentives
Market Structure: description
• Electricity
– Private participation is only allowed for energy generation and
capacity sales to Comisión Federal de Electricidad (CFE, the
state-owned energy utility), self-supply (including
cogeneration) and exports. Imports of energy for self-supply
are also allowed.
– CFE is in charge of public service provision and it owns the
transmission and distribution lines.
– The structure is that of vertically and horizontally integrated
state-owned utility with a high degree of market power.
Market Structure:
associated problems
Electricity
• This quasi-monopoly structure generates the following
problems:
– It limits most benefits to big consumers and generators, as
well as to CFE as energy buyer, due to lack of incentives.
– It constraints full and flexible competition in those activities
most able to sustain it (generation and marketing), which
would benefit users and CFE itself.
– It limits the necessary investment in less profitable activities
(such as distribution) and transfers monopoly inefficiencies to
the users who don’t have the option of self-supply.
– In general, it does not generate the proper incentives to
achieve efficiency in our industry.
Introduction of competition and regulation
in some sectors has shown positive results
Objectives
Legal and Regulatory Actions (examples)
Independent regulatory agencies
Institutional
effectiveness
Use of private
financing and
infrastructure
for public
interest goals
Separation between policy formulation (Ministry)
and enforcement of regulation (CRE)
Market–oriented energy project definition
• e.g. Natural Gas Distribution Networks originating
from private initiative instead of authority
Better risk allocation
• e.g. Granting a fix duration of exclusivity in some
energy projects in order to guarantee financial return
Using PPP in order to complement public
investment
• e.g. Private generators of electricity can sale
electricity surplus to the State Owned Company
• Reduction of barriers to entry, allow FDI
Results
Independent and
technical decisions
Prevention of
regulatory capture
Increase of
Private
Investment in
Energy
Infrastructure
• Prohibit vertical integration in order to avoid
market dominance.
Enhanced
competitiveness
of the whole
economy
• Open Access obligation to take advantage of
network economies.
Better conditions
for consumers
Procompetitive
regulation
• Regulation of SOC and private parties transactions
Key messages

Mexico can achieve higher competitiveness by fostering public
policies oriented to the introduction of competition in energy
markets

The main pillar of in-depth energy reform lies in the improvement
of energy market structures through competition.

Competition policy has a positive impact in how a country develops
its energy infrastructure

Further sector-wide procompetitive efforts in energy must be
carried out to develop infrastructure.
Energy sector has been benefited from
procompetitive interventions
Total Generation Capacity of the National
Electric System, 2012
Exports
1,330
2.1%
Own Usage
435
0.7%
Small Production
0.30
0.0%
Cogeneration
2,908
4.6%
Comisión Federal de
Electricidad
40,461
63.7%
Self Supply
4,745
7.5%
Independent
Production
13,616
21.4%
Total capacity:
63 496.3 MW
13
Energy sector has been benefited from
procompetitive interventions
Estimated Private Investment in Electricity generation
37,214.7
37,073.7
36,217.9
$40,000
MMUSD
$35,000
32,735.4
31,179.1
$30,000
28,214.1
24,620.2
$25,000
22,605.3
20,639.9
19,738.0
$20,000
17,285.5
15,063.5
13,823.7
12,041.2
$15,000
$10,000
6,177.3
4,180.9
$5,000
3,184.5
$2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
14
Energy sector has been benefited from
procompetitive interventions
Private Investment in liberalized markets of Natural Gas
Accumulated Investment (MMUSD)
3,500
3,000
2,500
2,000
1,500
1,000
500
Transport
Storage
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-
Distribution
15
Key messages

Mexico can achieve higher competitiveness by fostering public
policies oriented to the introduction of competition in energy
markets

The main pillar of in-depth energy reform lies in the improvement
of energy market structures through competition.

Competition policy has a positive impact in how a country develops
its energy infrastructure

Further sector-wide procompetitive efforts in energy must be
carried out to develop infrastructure.
The “Pact for Mexico” intends to address
much needed market structure reforms
The “Pact for Mexico” intends to
deepen the procompetitive effort in
energy markets …
2.1 Economic competition will be
intensified in all sectors of the economy,
with special emphasis in strategic sectors
such as telecommunications, transport,
financial services and energy
2.5 Carry out an Energy Reform that
fosters investment and development.
Reforms needed to create a new
competitive framework for the economic
processes of refining, petrochemicals,
and hydrocarbons transportation
… through a Energy Policy that would
lead to higher productivity and growth
Energy
Policy
Institutional
framework
To foster a new structure of
energy markets in Mexico,
a New Energy Policy shall
be instrumented (The
recently approved National
Energy Strategy follows
this path).
The institutional framework
must give force and
permanence to the energy
policy
17
Source: Pact for Mexico
Thank you very much
[email protected]