A Holiday Gift From Mexico: Energy!

As Jose Feliciano’s classic song Feliz Navidad enters its fifth decade of holiday season popularity, people around the world are dashing from store to store, trying to find gifts for their family and friends.

There are times, though, when companies receive gifts too. As well as industries. And entire sectors of the global economy.

Last week, the Mexican government approved legislation that essentially delivered an attractive gift to the global energy industry. It’s quite possible that the gift will ultimately benefit the Mexican people, although one legislator literally stripped off his clothes in protest before voting against the measure.

The gift is a law that will permit private corporations around the world to develop Mexican energy resources, to own Mexican retail gasoline stations, and to operate other facilities and programs. For the past 75 years, prior to the law’s passage, the energy industry was a government monopoly led by the state owned Pemex.

For decades, the creation of Pemex was a source of immense national pride. During the Great Depression of the 1930s, Mexican oil workers went on strike against an array of foreign energy companies from the United States, Great Britain, and the Netherlands. President Cardenas, siding with the labor movement, seized all foreign energy assets and declared public ownership over them.

But over the ensuing decades, the often cash strapped Mexican government struggled to find the resources to maintain energy facilities and invest in new research and development activities. Mexico’s new conservative President, Enrique Pena Nieto, thus supported the drive to privatize his nation’s energy industry.

Congressman Antonio Garcia Conejo protested that the decision would strip the Mexican people of their natural resources; he literally stripped off his clothing on the floor of the legislature in protest. Nevertheless, the measure was signed into law last week.

Will the legislation prove to be effective? Will it benefit the Mexican people? Ironically, the answer to that question may not be determined by the global energy industry at all.

It is, indeed, likely that an infusion of private capital will lead to a wave of modernization and an increase in efficient energy production. And that, in turn, will likely generate more government revenue.

But in order to generate benefits for the Mexican people, the government will need to find a way to channel that revenue into programs that support social and economic growth at the grass roots level. In other words, the success of the privatization initiative will ultimately be determined by the capabilities of the government sector.

That’s quite ironic, isn’t it? Although the Mexican government is looking to the private sector to help the Mexican people, it will inevitably need to look to itself to ensure the success of the initiative.