The title of this article paraphrases the name of the book “Freer Markets, More Rules”, wrote by Steven K. Vogel to analyze regulatory reforms in industrialized economies. One of the most powerful insights that Vogel´s work has to offer is the fact that, in a counterintuitive approach, economic liberalization of regulated sectors carried out by different countries did not entail a “retreat” of the State; since the government and the markets are not linked by a zero-sum relationship, he argues that a modern regulatory reform is a reorganization of the governmental tools used to better align the development of private activities with public interests.
The dominant trend of the use of economic regulation
policies to substitute old approaches
in governmental intervention in the markets
is one of the major economic shifts worldwide.
Moreover, when it comes to analyzing the energy
industry, in recent years we have witnessed the
most important developments in the history of this
sector: legions of new market structures and creative
business strategies, from non-conventional hydrocarbons
to offshore wind farms, have challenged the
traditional business-government relationship.
In this context, in order to reap
the benefits of the new realities,
Mexico chose to take an important
part of this new dynamic in
the global energy industry.
For decades, the status quo
of Mexico´s energy industry had
proven to be resilient against any
reforming attempts. However, the
2013 Energy Reform represents
a deep commitment to update
the underlying structures of our
energy markets in order to reach
our full potential for growth. The
underperforming monopolistic
arrangement of our hydrocarbons
and electricity industries,
reserved to Petróleos Mexicanos
(PEMEX) and Federal Electricity
Commission (CFE) respectively,
was completely replaced by market
liberalization, based on the
following principles:
Elimination of entry
barriers to private parties.
• Corporate overhaul
of PEMEX and CFE,
now stripped from any
government authority in
order to assure a leveled
plain field with new
entrants.
• A new governmental
architecture.
When it comes to analyzing the energy industry, in recent years we have witnessed the most important developments in the history of this sector: legions of new market structures and creative business strategies
However, before just laying all
hopes at the door of the removal
of entry barriers, the Reform
followed the best international
experiences, which showed that the market complexities that remained implicit in
energy industries - presence of dominant enterprises,
asymmetric information, agency problems, high
concentration, natural monopolies, etc.- demanded
the creation of agencies with the necessary technical
capabilities to deal with the core of those complexities
in a balancing act: providing conditions to
attract and reward investments, while taking care of
the efficient performance of the new markets as a
whole, including looking after the interest of the users
and other stake holders.
Hydrocarbons
In the specific cases of hydrocarbons midstream
activities (transportation, storage, distribution,
trading and end-users sales of petroleum, gas and
fuels) and electricity activities (generation, transmission,
distribution, trading and supply), the
Reform created the Energy Regulatory Commission
(CRE) as the agency in charge of regulating
those markets, all strategic in terms of economic
growth as well as social development.
In terms of authority, the CRE was given broad
economic tools, such as capacity to issue terms
and conditions to which its regulated activities
must be subject to, including open access obligations;
determination of the applicable considerations,
prices and tariffs for all regulated
activities and issuance of technical regulation in
quality and metering matters, as well as powers
to shape market structures, including regulation
and oversight of vertical and horizontal integration
between regulated companies.
Additionally, the CRE was vested with budgetary
autonomy and an institutional design that promotes
technical oriented priorities and isolation from political
cycles, including a strict contacts regulation
with permit holders that promotes transparency and
avoids discrimination. All the features of the CRE
represent the pinnacle of a government arrangement
wired to create the best conditions to foster
encourage investments and benefits to the economy
in terms of the balancing act above referred.
Finally, even though relying on sound regulatory
agencies to orientate industries can help unleash
the productive power of markets, addressing the
vast investment opportunities in Mexico requires
the involvement of all economic stakeholders, often
having to bridge ideological stands and overcome
pressures from vested interests. Dissemination
of information plays a key role in this arena,
by creating trust and educating about the benefits
of this new reliance on competition in open energy
markets, not only policymakers, but also citizens
and businessmen alike.