Carlos Slim Has Eyes on Mexico’s Energy Sector

Mexican billionaire Carlos Slim, the world’s second richest man after Microsoft founder Bill Gates, has his eyes on Mexico’s soon-to-be liberalized energy sector. “If you look at companies controlled by Slim like Grupo Protexa and others, you can see that he is positioning himself to reinvent some organizations as oil companies so as to bid for Pemex contracts,” says George Baker, an energy consultant at Baker & Associates in Houston, Texas.

Though the reforms will open up the opportunity for foreign companies to bid on drilling contracts, as of yet there is no stipulation as to whether there must be a target ratio of domestic-to-foreign investment. The assumption has always been that, with Pemex opening up the bids, most new players will be foreign. But that is not necessarily so.

“Mexico is a land of great simulation,” says Baker. “It all depends on how they write the national content laws. In appearance they may be encouraging direct foreign investment, but that may not always be the case.”

Baker says that Mexico will have its eyes on other jurisdictions to see what has worked in the past – and what has not. Brazil, for example, has such high domestic national content requirements that it is scaring off foreign investors. Mexico could also require that renewed drilling support increases investment in domestic infrastructure.

“However it’s done, they will still need to build a lot of infrastructure on the ground to address the demand,” says Baker.

A Risky Proposition

In order for the reforms to proceed in a fair and equitable manner, the bids will have to be open to public scrutiny. However, even with higher levels of transparency, there is still some concern among analysts that a powerful, well-connected domestic player like Slim could have the inside track.

“It would be a setback if Slim-controlled companies actually kept out foreign investment,” says Baker. “It could be that they will get the contracts, and then simply subcontract to foreigners to do the actual work.”

If that were to happen then Mexico would trade one inefficient system for another, with Slim’s companies essentially skimming off the top and limiting long-term foreign direct investment.

As it stands some companies controlled by Slim’s holding company, Grupo Carso, such as Infraestructura y Construcción and Swecomex, already supply oil-platform and drilling services to Pemex. And they do this often by hiring foreign workers, rather than training Mexicans.

“Slim also controls a company called Oro Negro, as well as construction outfits that could show up tomorrow and call themselves oil companies,” says Baker. “Before we join the crowds of people dancing in the street about this, we must acknowledge that things in Mexico aren’t always as they seem, and don’t always end as intended.”

To make things easier, Slim appears to be on the hunt for pre-existing oil companies, which he can then incorporate into Grupo Carso’s infrastructure division. So far, as was true in the highly politicized environment leading up to the reform legislation, foreign oil companies have been mute, though some, such as California-headquartered Sempra, have set up Mexican subsidiaries.

If these foreign interests end up cutting favorable deals with Slim’s companies to get contracts, all may stay quiet. But, if they feel they are being elbowed aside by “business as usual” in Mexico, the diplomatic silence may revert to some very loud complaining.

A Hiring Boom

Nonetheless, whatever Slim’s participation, companies in Mexico are clearly banking on the energy reforms resulting in a mini-boom.

“We are betting big on this,” says Gustavo Pares, CEO of Mexico City-headquartered Financetech. “There will be a strong services demand, including BPO, and that will require training.”

Financetech is targeting a number of industries that it feels will benefit from the oil boom, and that will need highly-skilled workers. They include energy, infrastructure, heath and ICT.

“We hope to show up first and show up strong,” says Pares. “We are good at HR, and good at IT. We know about delivery, and are now specializing in bringing the right people to the energy sector.”

Pares says that Financetech has signed exchange and collaboration agreements for programs with different universities in Mexico to ensure access to talent. They have also developed a high quality job board, as well as contests to attract top talent.

“Our clients cannot waste months trying to identify qualified workers,” says Pares. “We are trying to be a honeypot for local talent.”

Financetech can operate either as the contracting agent, with workers staying as employees of Financetech, or can deliver talent directly to its client base.

“We and our clients are optimistic about the opportunity,” says Pares from Financetech. “To us, at the end of the day, it does not matter who gets the contracts.”