VZCZCXRO1869
RR RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #7037/01 3552222
ZNR UUUUU ZZH
R 212222Z DEC 06
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC 4685
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MEXICO 007037 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA 
STATE FOR EB/ESC MCMANUS AND IZZO 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/ARUDMAN 
USDOC FOR ITS/TD/ENERGY DIVISION 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND SLADISLAW 
DOL FOR ILAB 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON ELAB MX
SUBJECT: NEW MEXICAN ENERGY UNDERSECRETARY DISCUSSES PLANS 
 
REF: A. MEXICO 3638 
     ¶B. MEXICO 6483 
     ¶C. MEXICO 6898 
 
Sensitive but unclassified, entire text. 
 
------- 
Summary 
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¶1.  (SBU) Constitutional reform in the energy sector is at 
least three years away according to the newly appointed 
Undersecretary for Energy Planning at the Mexican Secretariat 
of Energy (SENER), Jordy Herrera.  In the meantime, the 
Calderon Administration will introduce legislation to 
"strengthen the sector" including separating the Federal 
Electricity Commission (CFE), the Mexican Electricity 
Monopoly, into separate companies and developing new 
contracting methods to allow private firms to participate in 
deepwater oil development.  Introduction of this 
"strengthening" legislation will follow an analysis by the 
Mexican Supreme Court to determine which areas of energy 
production can be opened to competition without 
constitutional change.  Herrera felt Mexico could triple 
output from alternative energy sources, but it is unlikely 
that the Administration will challenge union hardliners to 
spur development of ethanol from sugarcane.  Energy Secretary 
Georgina Kessel will seek a greater role overseeing the 
Mexican energy monopolies Petroleos Mexicanos (Pemex) and CFE 
and will reorganize SENER under functional areas that could 
affect the international office that coordinates with the 
DOE, though such final decisions could be several months 
away.  End Summary. 
 
¶2.  (SBU) Emboffs paid a courtesy call on newly appointed 
Undersecretary for Energy Planning Jordy Herrera December 19. 
 One of three Undersecretaries to Energy Secretary Georgina 
Kessel, the Calderon team announced his appointment December 
¶11.  Previously Herrera had been a campaign advisor after 
working as Calderon's private secretary during his stint as 
Energy Secretary under Fox. 
 
--------------------------------------------- 
Constitutional Energy Reform Three Years Away 
--------------------------------------------- 
 
¶3.  (SBU) SENER was limited in its room to act given the 
constitutional restrictions on private participation in the 
energy sector, though Herrera added that the President was 
very much aware of the threat to the nation's finances posed 
by the decline in Mexican production. 
 
¶4.  (SBU) Pointing to the only picture hanging in his 
undecorated, new office, one of Calderon surrounded by Party 
of the Democratic Revolution (PRD) protestors and 
Presidential security taking the Presidential oath, Herrera 
said that given the current make up of the Congress, the 
Administration believed that it was at least 12-13 percentage 
points short of the 2/3 majority it would need in congress to 
amend the Constitution to allow foreign participation in the 
energy sector.  Mexico was at a "cultural disadvantage, with 
a large majority of citizens holding a 'leftist view' of the 
economy." 
 
¶5.  (SBU) Therefore, given other Administration priorities 
Calderon would not introduce the amendment for at least three 
years and not during the current Deputies' term. Herrera 
believed that in the end, it would be "congress leading the 
people" towards reform, thus the ideas that would be seeds of 
energy reform needed to be planted in the Congress.  He was 
confident that the President would eventually get energy 
reform passed. 
 
¶6.  (SBU) In the meantime, the Administration felt private 
investment was crucial to the sector so it would "do what it 
could" absent reform. SENER would propose a series of 
measures to "strengthen both Pemex and CFE" and provide 
additional opportunities within constitutional limits. 
Herrera said development of oil production in deepwater 
needed special focus. SENER and Pemex were working on 
 
MEXICO 00007037  002 OF 003 
 
 
modified contracts to offer deepwater service providers that 
would provide more attractive terms. 
 
¶7.  (SBU) The Mexican Supreme Court was also analyzing the 
reach of Articles 27 and 28 of the constitution to determine 
precisely which types of private participation in the 
petroleum industry would and would not be permitted.  Herrera 
expected an answer from the court in March or April 2007. 
 
---------------- 
More Natural Gas 
---------------- 
 
¶8.  (SBU) The natural gas sector also needed regulatory 
changes.  On one side with its lower rate of return versus 
oil, Pemex was reluctant to spend its limited capital on 
natural gas projects; conversely, CFE needed supplies of 
natural gas to run combined cycle plants.  Herrera believed 
CFE operated liquefied natural gas (LNG) projects, 
specifically the terminal currently being bid in Manzanillo 
(ref A) started under the Fox administration, were good ideas 
and should go forward.  He suggested that Mexico would 
consider projects in other regions.  Herrera said Mexico did 
have enough electrical generating capacity on-line or planned 
to see it through the next 15-20 years. 
 
--------------------------------------------- -------------- 
More Renewable Energy, but Dim Outlook for Biofuels/Ethanol 
--------------------------------------------- -------------- 
 
¶9.  (SBU) On alternative energy, Herrera felt that Mexico 
needed an achievable goal of 6-7000 MW total from renewable 
sources to be developed over the next six years.  Currently, 
renewables provided approximately 2000 MW, mostly through 
wind farms in the State of Oaxaca.  Herrera expected the 
biggest renewable developments would come from 
mini-hydroelectric projects in southern Mexico. 
 
¶10.  (SBU) On biofuels and ethanol, he was much less 
sanguine.  While confident the Congress would quickly pass a 
biofuel/ethanol law providing a regulatory framework for the 
sector (ref B), he did not see corn as an appropriate 
feedstock, and as long as sugarcane prices remained fixed, it 
too would not be an economic choice.  He added that, as an 
accident of geography, those areas where Pemex is strong and 
could provide ethanol infrastructure (the State of Veracruz), 
the sugarcane workers union which aggressively protected 
fixed sugar prices, was also strong.  This conflict would 
prevent development of the sector for the foreseeable future. 
 Despite the Administration's interest in promoting ethanol 
and biofuels, given their other challenges, taking on the 
union would not be a priority. Nevertheless, the regulatory 
framework for ethanol and biofuel production would be in 
place, so ethanol production could move forward once the cane 
workers backed away from their obstructionist stand on sugar 
pricing. 
 
------------------------------------ 
SENER Reorganization and More Power? 
------------------------------------ 
 
¶11.  (SBU) While Herrera, with only nine days on the job, 
felt it was too early to say where Energy Secretary Georgina 
Kessel would take SENER, he added that one of Kessel's first 
tasks would be to break up CFE into separate companies based 
on function (generation, transmission, distribution, etc.) 
and develop a legislative framework to govern the sector. 
Currently, CFE is controlled by presidential decree. As for 
SENER itself, Herrera expected that the Secretariat would be 
reorganized from the current three directorates based on 
energy type: hydrocarbons, electricity, and planning to a 
functional structure, with directorates for planning, 
regulatory framework, and industry coordination. He also 
suggested that the current international office (which leads 
on SPP energy discussions with DOE) be combined with the 
investment promotion function; though a final decision had 
not yet been taken.  Finally, he said that President Calderon 
wanted a "stronger Energy Secretariat."  To that end, he said 
that Secretary Kessel wanted to hear directly from foreign 
companies wanting to do business with Mexico, and Kessel then 
 
MEXICO 00007037  003 OF 003 
 
 
would ensure new opportunities are presented to Pemex and 
CFE.  Kessel would be especially interested to hear from 
companies with new technologies, especially in deepwater 
technology. 
 
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Comment 
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¶12.  (SBU) Herrera spoke with complete confidence in our 
initial meeting.  But, as new Administration appointees sort 
out the relationship between Pemex with its 140,000 
employees, powerful union, and well-respected new CEO (ref C) 
and SENER with its modest staff of 800, priorities may shift. 
 Nevertheless, unlike previous Mexican Undersecretaries for 
Energy Planning, Herrera does enjoy a close relationship to 
the President.  End comment. 
 
 
 
 
 
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