Energy Latam Blog | 2016 Jan | W2 – 4

Weekly Highlights


While Brazil’s corruption perception ranking took a hit in Transparency International’s index, Mexico’s remained steady (see map). 2015 was a year to celebrate predictability, but corruption remains an issue with which Mexico must contend as it continues to implement energy reforms. Nonetheless, in contrast with the region’s largest economy, the Mexican government is thought to have anticipated the slow down (Spanish) more prudently, and the IMF has indicated the country will grow approximately 2.6 percent (Spanish) despite a number of obstacles.

Mexico’s oil sector will need all the help it can get as it faces further falls in oil prices (Spanish), increased price pressure due to Iranian activity in the market, and large debt payments. The disparity between Pemex’s cost of production and current oil prices is a constant object of concern. Pemex continues to reduce capital expenditures, re-prioritize projects, and reduce its workforce (English). In some ways, policymakers in Mexico benefit from the contrast in the country’s situation with the crisis in Brazil. While there were protests about the justice system and grumbles about the president’s family finances in 2015, Mexican citizens are able to rejoice in the relative steadiness of an economy that has weathered severe crises in the past three decades and attempts to keep the lessons from them top of mind.

The Mexican oil industry is moving into 2016 with increased complexity and uncertainty in its market environment, but the renewable energy sector in Mexico is looking at improving regulations and market conditions (English). In addition to positive changes in the electricity sector (English), NEXTracker Inc has begun manufacturing operations in Mexico for its solar trackers (English). Readers may recall Clean Energy Certificates (CELs) that were issued in Mexico last year to help it move toward its energy matrix goals. These certificates will continue to play a role as the Mexican renewable sector looks toward a brighter 2016 (English).


As part of its ongoing divestment strategy, Petrobras is expected to sell its 36 percent stake (Spanish) in Latin America’s largest petrochemical producer, Braskem. The expected exit is part of an ongoing strategy Petrobras is using to deal with its debt load, the  largest in the industry at $130 billion USD. It is planning to rid itself of $15 billion USD in assets by the end of the year and shed $42 billion more by the end of 2018. However, the Brazilian Treasury has not ruled out a possible bail out (English), action that might be necessary if Petrobras does not make sufficient progress in its divestment strategies. Since the Brazilian economy is expected to contract and the corruption scandal is likely to expand, Petrobras stocks have been labeled among the riskiest (English) despite the company’s efforts to improve its cash flow (Portuguese). In addition, the company’s recent history contributed to the country’s serious decrease in credibility (English) on Transparency International’s corruption index (see map in above section).

In keeping with increased scrutiny of the Brazilian oil major, a judge in Brazil has blocked its sale (Portuguese) of part of its subsidiary, Gaspetro, to Mitsui Gas e Energia do Brasil. The judge cited a lack of transparency in the process. If the sale had been executed, it would have brought approximately $500 million USD to Petrobras (English).

In renewables, Aneel has licensed 476 MW of wind and solar projects (English) from a recent auction. In the state of Rio Grande do Sul, mini and micro solar systems were deemed exempt from tax (English). Looking to the future, Brazil passed a law that has allowed for increased competition (English) in its March auction for wind, biomass, hydro power, gas and coal-fired power plants. Lastly, Brazil’s biofuels sector is reporting it experienced 18 percent growth (English) from 2014 to 2015.


While stories about advances in the peace process (English) have been more popular, reports from Colombia indicate that the country is producing oil below the $21 USD per barrel cost of production (Spanish). Because revenues at the Colombian state-run oil company, Ecopetrol, affect public coffers, the company bears a special responsibility and is being scrutinized by various societal actors. Moody’s reduced Ecopetrol’s credit rating (English) to Baa2, stable but one notch above junk status. Ecopetrol has been reducing costs, including cutting capital expenditures, social initiatives, and implemented an unpopular salary adjustment that prompted a blockade of its Cartagena refinery (Spanish) by some of its union employees. The ultra-modernized Cartagena refinery (Reficar) was expected to be a game-changer once it produces at full capacity. However, the progress toward that point in the process is in doubt. When coupled with persistently low cash flows and an unfavorable market for asset sales, the outlook for Reficar and Ecopetrol will need to be monitored and possibly further moderated.


In contrast to many of its neighbors in South America, Bolivia can boast several noteworthy statistics in its political economy. The country is enjoying the lowest credit default rate in its history in addition to healthy foreign currency reserves. Though it has suffered currency weakness, the relative health of its economy has allowed it to weather the recent commodity storms relatively drama-free.

In addition, the Andean nation recently hosted a German delegation interested in developing the Uyuni salt flat (see map below). During the visit, representatives from the two countries discussed ways in which knowledge and technology transfer would be part of any process they initiated.


Video of the Week: Catarata (Waterfall) Series

This week, I feature the small but mighty Salto Grande waterfall found in Torres del Paine National Park in Chile. Enjoy!

Claudia V. Espinosa

Leave a Reply

Your email address will not be published. Required fields are marked *