North America

Derivation: Mexico encourages higher wealth distribution

A refineryOne of the fallouts of the just-concluded 13th Annual Nigeria Oil and Gas, NOG International Conference and Exhibitions is the issue of derivation, with Mexico, a top oil producer advocating for higher derivation to resource rich areas.

A former Undersecretary for Hydrocarbons, Republic of Mexico, Mr. Mario Gabriel Budebo, who was the speaker for the Leading Light Session sponsored by ExxonMobil Companies in Nigeria, told the audience that derivation to host communities in his country is between 30 and 35 percent of the total oil revenues.

Budebo, in response to a question on how the oil wealth is distributed in Mexico in order to compare notes with Nigeria, said, “With regard to wealth distribution between 30 and 35 percent goes to the oil producing states and the remaining 65 percent is distributed among all the municipals based on the size of the population.”

He added the figures may go even higher, as currently discussions were ongoing in Mexico, as to how to distribute the new productions recorded in the recent times.

His response attracted a loud ovation from the audience, especially as the issue of derivation has remained a knotty one in the Nigerian polity, with the Northern region complaining that the current 13 percent allotted to the Niger Delta states had placed these states above them, thereby creating not just uneven distribution of resources but also impeding general pace of development of the regions in the country.
Indeed, one of the main objections against the Petroleum Industry Bill, PIB, undergoing scrutiny at the National Assembly, is the proposal to establish additional 10 percent equity fund to the oil communities, a move the Northern states have sworn they will not support.

Shared experience
In his introduction of the speaker, the Country Chair/Managing Director, ExxonMobil Companies in Nigeria, Mr. Mark Ward, explained that the purpose of the session, “… is to bring greater perspectives on how to make Nigeria’s oil and gas industry more globally competitive, and to determine what it takes to become globally competitive.”

He added that Mexico, also a developing country, had also gone through similar oil exploration and exploitation experiences like Nigeria, and to see what possible lessons that could be learnt from these experiences.

These, Ward said, would help Nigeria tremendously, especially now as the petroleum industry in undergoing major reforms, which could make or break it globally.

Mexican oil and gas reforms
Budebo, who spoke on, “Oil and Gas in Mexico: Evolution, Legal Changes and Future Opportunities,” took a historical detour of petroleum development in his country, saying that oil production had gone on for well over 70 years  before reforms began in 2008.

He added that before it came, the process took about two years of fine-tuning before it became acceptable.

He recalled: “Mexico’s petroleum history dates from the beginning of the twentieth century. At the time, concessions were given to international companies to explore the territory and produce petroleum: First under the ownership of the landowner, and after 1917, under the ownership of the Nation, paying a special tax.

“During the fir st quarter of the 20th century, oil production in Mexico increased significantly. By 1921, Mexico was the second largest producer in the world, contributing with 14% of total world production; with approximately half a million barrels a day.”

Budebo further observed that the period was “the first time in Mexico that a public forum was created by Congress to discuss a reform<’ adding that it was accompanied with “A very through media campaign.”

According to the former Mexican Hydrocarbon boss, the reforms brought about stronger regulatory policies for the petroleum industry, which were based on four main broad objectives with a view to making the industry more market oriented:
New corporate governance – Integration of independent non executives directors and new attributions to the Board.

Alignment of incentives – Mandate for value creation; defining responsibilities; payroll linked to performance; greater public informative requirements, and citizen bonds.
Execution capacity – New contracting scheme for greater participation of the private sector. More risk oriented contracts, and,
Management autonomy – Application of excess revenues, approval of budget adjustments and freedom for internal structural organisation.

He concluded that for the reforms to be as successful as expected there was the need for the state oil company, Pemex to demonstrate greater market discipline, which echoes Nigerians desire for the Nigerian National Petroleum Corporation, NNPC, while also emphasising the need to improve transparency and best acquisition practices and a host of others.

He maintained: “The new reform should include deeper changes that allow more open conditions for the participation of private companies, as well as more autonomy to Pemex, under a market discipline scheme that gives the company a larger set of tools to perform in this new environment.

“Such changes would boost investment in the sector, bringing employment and economic growth to the country. A new petroleum reform under these lines, would result in higher operating efficiency, lower costs, faster incorporation of new technologies and, as a result, increased economic rent for the benefit of the country.”

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