Lessons African countries can learn from Mexico’s successful Licensing round and energy reform
By Sunny Oputa
If transparency, ease of doing business and lessened corruption is the collective name of the game towards wooing investors and increasing their confidence to invest in a country, Mexico played it well in their recently successful oil licensing round this January. The round helped the Latin American country to secure a whooping sum of almost $100 billion investment. Despite security quagmire that challenges the civil and business environment of Mexico, mega oil companies must have passed vote of confidence on Mexico’s energy reform which proved to be fair, friendly and transparent as a de-risking tool that emasculated and reduced the prevailing security risks in the country to nothing.
The energy reform; the modus operandi that ensued in Mexico’s successful oil tender which greased the appetite of big international oil companies such as Royal Dutch Shell, Qatar Petroleum, Repsol and others should be a strategic lesson for African countries that seriously needs to attract huge foreign investment to grow its oil industry and stimulate local economies.
For decades, Mexico blocked foreign companies from investing and operating in its oil industry. A massive decline in revenue and production triggered a well constructed and delivered energy reform when Pemex, the Mexican national oil company production was at a monumental four year low. The reform and cultural change which opened Mexico’s door to allow foreign operations has become a big testimony on free and fair market economy.
Almost all the licensing rounds in Africa are shrouded with colossal corruption, transparency is far-fetched and it will easy for a camel to pass through the eye of a needle than ensuring ease in doing business with most African countries. This is why majority of blocks won in such tenders end up in courts and drastic cases of foreign corrupt practices manifests. This disjointed business mechanism drives away real international players that would want to invest and play by the book in accordance to global best practices.
The licensing round among other attributes justified that the Royal Dutch Shell which won about nine contracts out of the 19 deep water blocks offered in the round to position itself as the biggest deep water player in Mexico and also in Brazil is a serious global player in deep water exploration and production, and would heavily invest wherever risks of corruption, ease of doing business, transparency are low, thereby giving them leverage in de-risking security issues. Same could also be said of other players that won significant blocks in the round such as Petronas , Eni, Chevron, Pemex Repsol, Ophir, PInpex, PTTEP, Sierra Nevada E & P
The emergence of new players such as Qatar Petroleum in Mexico’s bid round also testifies that where investment environment is good, that there are new investors willing to take major calculable and bankable risks.
Although BP, Total, Statoil, CNOOC, ONGC, and BHP Billiton did not acquire acreage in this round, however, it still undoubtedly showcases high investor confidence in Mexico’s reform and the political environment.
According to Aldo Flores, the undersecretary of hydrocarbons in Mexico, almost $100billion secured in the round was almost one and half times the total investment in the nine previous tender in the country since the prominent reform of 201 which enabled Mexico to open its doors for international companies to do oil business after the ban 80 years ago. Compared to total oil/gas revenue for Nigeria, Africa’s 1 producer for 2016 which was barely $26 billion, falling from $thirty seven billion in 2015 due to falling oil price and production disruptions.
In furtherance to the great expectations, Juan Carlos Zepeda, head of the National Hydrocarbon Agency of Mexico stated that if all the blocks awarded become successful that would double the current 1.9m barrels of oil per day. This would be a tremendous revenue jump, if the oil market maintains its current growth and stability.
As many African countries prepare to come out with new petroleum laws, energy reforms and usher in new licensing for acreages, which other school to acquire knowledge will be better than the one that Mexico has become exemplary as psycho-analysis for understanding the minds of big investors and what attract humongous foreign investments.