Interview with Gregory Remec, Senior Director, Global Infrastructure Ratings at Fitch Ratings

It was a pleasure to have you join us as a panelist at the virtual 2021 Mexican Energy Forum. 

ED: You participated in the panel: The new reality and challenges of investment in Mexico today. Can you share with us a quick summary of what your panel focused on and the main points that were addressed?

GR: Our panel focused on how changes in Mexican energy laws have affected privately developed energy projects in Mexico.  The main points I addressed included:

• Government policy decisions are creating uncertainty for investors, which requires higher returns, can delay investment decisions, or shift investment to other countries perceived to have lower risk.
• Country sovereign rating downgrades led to similar downgrades for rated projects.
• Overview of key rating drivers and criteria for project bond credit ratings.

ED: In your opinion, how will the revised 2014 Hydrocarbons law impact current infrastructure projects?

GR: If the proposed revisions to the law survive legal challenges and are enforced, the impact is expected to be a significant reduction in foreign investment in Mexico’s energy sector.  The law reforms allow federal energy regulatory entities to artificially favor PEMEX at the expense of foreign investors by raising the market barriers to entry and resuming monopoly advantages.  Revoked or altered permits will hinder construction and completion of projects already under construction, and likely delay investment in projects still under development.  Existing projects may face reduced, delayed, or eliminated revenues.

ED: What is next for the infrastructure sector in Mexico?

GR: Investors are very likely to wait for the outcome of the June elections to see if the current administration wins enough support to allow constitutional amendments supporting current energy policy initiatives.  Investors will also follow closely any legal challenges to the proposed reforms through final resolution, which could be at the supreme court level, which will take more time and further delay investment decisions on infrastructure projects in Mexico.

ED: How will the ongoing policy decisions the government is taking impact international investment in the Mexican energy industry?

GR: They will delay and/or reduce international investment.

ED: How do you foresee the recent changes will impact ratings?

GR: They have already caused negative rating actions.  Further negative rating actions may occur if current reforms survive legal challenges and are enforced.

ED: In the current environment, what are the main challenges for the private sector? Are there any opportunities on the horizon?

GR: The main challenges remain evaluating regulatory risk exposure amid uncertainty created by the government, and deciding if the infrastructure sector in Mexico remains an attractive investment opportunity.  If the rule of law prevails and the energy law and hydrocarbon law are not modified, investors are much more likely to continue supporting project development in Mexico.  Infrastructure modernization and expansion are critical to supporting Mexico’s anticipated strong growth, and will require both public and private investment.