Lourdes Melgar is a CIS Robert E. Wilhelm Fellow for the 2016-2017 academic year. As Mexico’s deputy secretary of energy for hydrocarbons, Melgar played a leading role in designing and implementing Mexico’s all-comprehensive energy reform. Melgar also served as under secretary for electricity and has held various diplomatic positions. She received her PhD (’92) in political science from MIT.
précis: What was the impetus for such a comprehensive package of reforms to the hydrocarbons and electricity sectors, which even involved changes to Mexico’s Constitution?
LM: Mexico’s oil production peaked in 2004 and has been declining ever since, despite vast deep-water and shale reserves. Pemex, the state-owned oil company, simply did not have the technical, financial and managerial capabilities to develop these resources on its own. The Constitution banned Pemex from entering into joint ventures, as is done in other parts of the world. Similarly, the Constitution limited participation in the electricity sector to state-owned utilities. Such restrictions contributed to high electricity rates, damaging Mexico’s competitiveness. It was clear that a comprehensive Constitutional energy reform was needed.
In 2008, Mexico attempted an oil sector reform, but not at the Constitutional level. At the time, the government simply did not have enough political backing. In 2012, things changed: between being elected in July and taking office in December 2012, President Peña Nieto negotiated what is known as the “Pact for Mexico” with the major political parties, securing their support for eleven structural reforms, including of the energy sector. This was a unique political moment in Mexico’s modern history.
précis: What is the significance of energy reform for Mexico’s economy?
LM: Energy reform is essential to Mexico’s energy security, economic development and competitiveness. This reform paves the way for the creation of competitive markets for natural gas, electricity and refined products. It also paves the way for the emergence of Mexican petroleum companies, independent generators, and new players in the renewable and energy efficiency fields.
Electricity reform is fundamental to boosting Mexico’s industrial competiveness. Because Mexico’s industrial electricity rates were 89% higher than in the US, companies were considering leaving for the US. The combination of a natural gas shortage and high electricity rates were harming the industrial sector. With the reform, Mexico aims to secure widely available natural gas at competitive prices, as well as cleaner and cheaper electricity.
A central theme for us was sustainability. The Finance Ministry stressed the importance of financial sustainability, and recommended putting part of oil and gas revenues in long-term savings. Yet we decided to broaden the concept of sustainability to include environmental and social sustainability as well. Industrial safety and environmental protection, as well as climate change mitigation, is one of the key principles of the Reform. At the societal level, the goal is to ensure that benefits trickle down to communities. In order to promote job creation at the local level, we emphasized the importance of developing local industrial value chains.
précis: Can you tell us more about the Ministry of Energy’s efforts to work with local communities?
LM: A key challenge for us was to attain the “social license” from local communities in order to operate in given areas. In Mexico, oil and gas resources belong to the State, but now private companies can conduct operations. It was essential to establish a system to ensure consultation with indigenous populations and fair negotiations between communities and private contractors.
When I was under secretary for electricity, I was tasked with handling a major dispute over plans to build a wind farm in Oaxaca. I found that in some cases private companies interacted in a terrible way with the local community, generating social turmoil. That experience taught me the importance of fair payments and having the right type of negotiations with the owners of the land.
précis: What was the impact of low oil prices, and how did you deal with this challenge?
LM: When the first tending process for oil contracts was announced in August 2014, oil prices were quite healthy, at over $100 a barrel. Round One was ambitious—it included five bids and was due to end in July 2015. But shortly after the announcement, oil prices started to decline—they fell by 75% in a very short period of time. By December 2014, the scenario was fundamentally different.
A lot was riding on this first round. It was the first time in eighty years that Mexico was accepting private players, and low participation would have looked like a failure for the government. We revised our oil contracts to make them more competitive, and extended the completion of Round One to December 2016.
précis: How has your experience in government shaped your beliefs about the role of women in leading political and social change?
LM: I believe that women have an important role to play in the design of policy. Women tend to stress the importance of balance—life is not simply a matter of efficiency and competitiveness. Therefore, women tend to emphasize different issues, such as environmental soundness, social viability, and human rights. For example, the social component of energy reform was in the minds of the women on my team, not the men. Indeed, a team of women spearheaded the effort to work with local communities. Fortunately, the Secretary of Energy, Pedro Joaquin Coldwell, was sensitive to these issues.
I believe in the importance of gender balance, as women and men working together complement each other. The key, however, is mutual respect, which involves listening to each other. Because I have had to deal with men talking over me, I underscored to my team the importance of listening to what women have to say.
précis: How can women who are thinking of entering the traditionally male-dominated areas of public policy and STEM overcome some of the obstacles that women frequently face?
LM: Education is key. Unfortunately, women in these fields often confront the stereotype that they are not knowledgeable enough and have nothing to say. It is therefore important to know the facts and to prepare, but also to be willing to stand up for your ideas. Sometimes it is not easy, but you must have the confidence to know that you have it within yourself.
I also believe that it is important for women to support each other professionally. I benefited from this as part of a “Women in Energy” group. The group started in the 1990s with six women who would meet over coffee, and now has grown to nearly 50 women. As Mexico’s ambassador to the C3E Women in Clean Energy Initiative, I mentor young professional women in the energy sector. Also, as the president of the Mexican chapter of the International Women’s Forum, I have the opportunity to hear from women who have overcome hurdles in their fields. Sometimes, good advice—like not to take things personally—is not necessarily what you want to hear. But it’s about getting things done and having a pragmatic and positive attitude.
précis: When you were a graduate student in the political science department here at MIT, did you know that you wanted to pursue a career in public policy?
LM: At the time, I didn’t think I was going to be in public policy. I came here as a graduate student planning to study IPE, and ended up writing a political economy dissertation on regional development. After graduating, I faced a dilemma between staying to teach at a U.S. university or returning to Mexico. I decided to go back to Mexico, at least for a year, to give back to my country.
I got a job as a speechwriter for the president of Mexico. I did not like it at all! The culture shock was too much. Not just because I had been away from Mexico for ten years, but because academia is so different from the hectic schedule, bizarre working hours, and limited interaction with people that came with my job. I was considering returning to the US when I was offered a position at the Foreign Affairs Ministry that involved working on economic relations with Central America and the Caribbean. I loved it. I found my calling and became a career diplomat. I enjoyed designing policy, negotiating, and representing Mexico.
Later, as assistant secretary for international affairs at the Ministry of Energy, I had the opportunity to learn about international energy policy. This was in the late 1990s, in the midst of another oil price crash. I got to be part of the team that helped to broker a deal between Mexico, Norway, Venezuela and Saudi Arabia to stabilize the international oil market. This experience, as well as the negotiation of the first trans-boundary hydrocarbons agreement between Mexico and the United States (the Western Gap Treaty of 2000), completely changed my outlook. I became passionate about energy policy and energy policy design.
précis: What are you currently working on at MIT?
LM: I am writing a book about Mexico’s energy reform. The book will emphasize sustainability as the cornerstone of the reform. In addition to taking advantage of the many opportunities MIT offers, such as attending seminars and catching up on things going on at the Institute, I am planning to organize a series on Mexico, looking at culture, politics and North American integration. I also plan to offer a class during IAP on different aspects of Mexico’s energy reform.