Mexico's new president faces daunting task

Jul 11, 2006 02:00 AM

Mexico's apparent President-elect Felipe Calderon of the ruling centre-right National Action Party (PAN) faces the daunting task of ensuring the country's energy needs are met in light of growing demand.
Calderon has reportedly beat centre-left opponent Andres Manuel Lopez Obrador of the Democratic Revolutionary Party (PRD) with 35.89 % of the vote, a slim 0.58 % lead. Calderon would take over from President Vicente Fox in December, although Lopez is appealing the election results due to alleged "irregularities." The Institutional Revolutionary Party (PRI) saw their candidate Roberto Madrazo come in third.

Former energy minister
Calderon's last government position was that of energy minister from 2003-04. During his time in Mexico's top energy post, oil and natural gas production reached historical levels, a tender to build the country's first wind farm was launched and seven power plants began operations. During the next president's administration, the country's energy sector likely will demand an important injection of resources to increase production levels. According to the energy ministry (Sener), Mexico's power sector needs 509 bn pesos ($ 46 bn) in investment through 2014 to meet annual power demand that is expected to grow 5.2 %.
In general terms, Calderon's infrastructure plans are built around works the country will need until 2030. He does not plan to reduce oil and natural gas production and will try to increase the participation of local companies and improve financing options.

First 100 days
Specific actions planned for his administration's first 100 days in office include promoting legislation that would allow state oil company Pemex to enter into technological associations with other sector companies to explore deepwater deposits. Other legislative priorities seek reforms to attract private sector investment to complement government spending in refining and petrochemicals.
In addition, Calderon will push for laws to help municipalities pursue self-supply projects. His government also would try to open the way for bilateral contracts between large-scale users and electric energy producers.

Another priority is advancing the start of operations of natural gas projects in the Burgos basin. Pemex plans to invest $ 14 bn in Burgos projects from 2007-21.
Calderon plans to tap into renewable energy sources in order to power remote communities. The government estimates the potential generation capacity from renewable resources is 14,650 MW.

Outlook
Calderon's government likely would sustain solid policy frameworks, Shelly Shetty, senior director of sovereign ratings at Fitch Ratings, told.
"We expect further consolidation of macroeconomic stability, underpinned by lower inflation and a balanced fiscal position," she said. "The main challenge confronting his administration would be to negotiate structural reforms in the areas of fiscal, energy and labour sectors. In light of the gains that PAN -- President-elect Calderon's party -- has made in congress, we expect him to have more space to negotiate," Shetty said.

Fitch's sovereign rating for Mexico will depend on the progress Calderon's administration is able to make on reforms, she said.
"Calderon's plan is the most liberal in terms of private participation," Sergio Rosado, an analyst at the Mexico City office of Boston-based Cambridge Energy Research Associates (CERA), said. "However, it seems the tight election will make political reforms a priority over economic reforms in the immediate future, but it's too early to know what's going to happen. We need to see how the current situation unfolds over the next [few] weeks," he said.

Source: BNamericas
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