Economics: Energy Reform’s Stubborn Hurdles
Three years since the energy reform was signed into law positive results have been recorded but there remains much work to be done in strengthening state-owned companies. One of the most successful aspects of the energy reform has been the enthusiasm with which investors have responded to the bidding rounds for oil fields and electric power projects. Moreover, notable progress has been achieved in relation to the central axis of institutional strengthening in the energy sector. Last month the Organization for Economic Cooperation and Development (OECD) published an evaluation of the external governance of Mexico’s energy sector and its three regulatory bodies that emphasized the extent to which these authorities have been consolidated.
Despite the achievements in relation to private participation and institutional strengthening, there has been little headway in fulfilling the goal of reinforcing the state-owned productive enterprises (Pemex and electric power utility CFE) so that they could be in a strong position to meet the challenge of increased competition posed by the entry of new actors in the Mexican market. Although Pemex reported favorable results for the first quarter of 2017, they were achieved on the strength of a firming of oil prices even as production volumes continue to narrow.
In this week’s Economic Outlook section we focus our analysis on the main implications of the energy reform and more specifically on the most recent financial statements (released May 3), from Pemex, the state-owned productive enterprise with the most difficulties and the greatest challenges ahead.
In other economic news last week, consumer prices increased an unexpectedly sharp 5.82% compared to the same month of 2016, which was the highest level recorded for that month since 2009, when inflation was reported at 6.17%. Gasoline and goods inflation were the main drivers of headline inflation, as they had been since the beginning of the year.
A similar development was the rebound in the basic basket, the cost of which rose 7.83% above levels of April 2016, when such prices inched a mere 0.73% higher. A review of the 82 basic products and services comprising the basket shows that the hardest hit to the pocketbooks of consumers emanated from the sub indexes of transport, food and housing.
A specific situation of note was the decision by the authorities in Mexico City (CDMX) to raise public transportation fares near the end of April, which served as an added driver to the uptrend we have witnessed since January. The CDMX government raised fares on average by one peso in the case of microbuses, buses and other transport that transits along corridors for which concessions have been issued. Fares were unchanged in the case of the city’s metro subway and metrobus systems.
The sharp increase in the price of the basic basket probably continued to play a part in the slumping of consumer confidence as it has since the beginning of the year. Between January and April the Consumer Confidence Index fell an annual 13.8% annual, including a 5.6% drop in April.
Adding to this list of unfavorable results was the industrial production report for April, which showed activity was flat compared to March; this indicator has failed to register any growth so far this year.
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