SCOTTMADDEN, INC. | 21 MEXICAN ENERGY REFORM: SPURRING ENERGY INFRASTRUCTURE GROWTH The Mexican government seeks to improve energy sector performance by attracting private sector capital, ownership, and operators. Getting More out of Mexico’s Energy Sector • Mexico enacted reform of its petroleum, natural gas, and electricity sectors in 2013 under President Peña Nieto • Mexican GDP has been growing at about 4% annually, with energy projected to grow 3% to 4% annually over the next 15 years • Industrial customers are the biggest consumers of electricity in Mexico—nearly 60% of retail sales (see Fig. 1) • However, the Mexican energy sector has been fraught with inefficiency—historically, industrial electricity costs have been more than 70% higher than in the United States; T&D energy losses in 2014 were about 14%; and hydrocarbon production was declining • Moreover, the government wants to attract new infrastructure investment, increased renewable installations, technology, and know-how without relying exclusively upon government investment Figure 1: Mexico Electric Consumption by Sector (2013) (% of Total) 100% 80% Services Agriculture 60% Commerce Residential 40% Industry 20% 0% 2013 Source: World Economic Forum Key Issues with Mexican Energy Reform Lingering Giants Will state-owned companies have a continued, outsized influence both on supply and demand with implications for true competition, transparency, and access by new entrants? Shale Development How long before increased Mexican gas production will reduce gas pipeline imports from the United States? Funds Available Can Mexico attract the amount of capital needed for planned reform and buildout? Sufficient Cheap Clean Power Will planned clean power development be enough, and cheap enough, to meet growing power needs, especially for the industrial sector?