Pending Governance Challenges in the Mexican Oil Industry: A Case for Checks and Balances

This is a critical account of the regulatory framework governing Mexico’s upstream petroleum sector, as a result of the energy reform passed by Congress in 2013 and 2014. Despite the high expectations raised by the opening of the Mexican oil sector towards a market-friendly investment regime, my main argument is that there is set of institutional shortcomings present at the oil regulatory model in force, making the energy reform’s liberalization objective far from being complete. Based upon a political economy approach toward institutions and a comparative analysis of the Norwegian petroleum regime, the present case study applies a concept of checks and balances –as governing standard– to evaluate the new governance model by which the Mexican state has decided to exert control over oil exploration and production activity. This research identifies sources of excessive administrative discretion and power concentration at the level of 1) the rules governing property rights, 2) the public law contract regime for upstream oil activities, and 3) the administrative state on petroleum in Mexico. The array of failures affecting a balanced oil regime in Mexico lead this critique to put into question whether the government has the capacity to credibly commit to a robust liberalizing policy of its upstream oil business. More importantly, the institutional design weaknesses stressed by this analysis suggest the persistence of a rentier-state logic shadowing Mexico’s upstream oil governance. This rentier function seems to be guaranteed by a full state ownership structure that is much more flexible and permissive than that of the past, but still grants discretionary command and control of this extractive industry to the presidential administration –which ultimately plays against the sector’s development