Reforms could reduce expropriation risk, Latin America forum told

Reforms under way in several Latin American countries contain provisions aimed at increasing certainty for foreign investors and improving chances that energy assets will not be expropriated later, speakers at the Inter-American Dialogue’s Latin America Energy Conference suggested.

“Despite problems, institutions have evolved in Colombia. At the end of the day, they guarantee things will work,” said Jose Vincent Zapata Lugo, a partner at Holland & Knight’s office in Bogota, during the Oct. 25 event. “There’s no expropriation precedent. Institutions have evolved to protect investors.”

RoseAnne Franco, head of oil and gas risk at Verisk Maplecroft, a British global advisor, said, “Countries are beginning to ask how they stand up compared to others in the region. Companies have tried to diversify risk, but also have encountered left-leaning governments where little progress has been made.”

Prospects for improvement range from good in Mexico through uncertain in Brazil to dismal in Venezuela, the speakers said. “We expect [Petroleos de Venezuela SA] to continue making its payments because it will be the main revenue source for the government,” said Risa Grais-Targo, Latin America director for the Eurasia Group. “External financing will be the key. Right now, bilateral partners—mainly state-owned oil companies—seem to be the only option.”

Hector Castro, a representative from Mexico’s Energy Ministry, said that the country still faces challenges from relatively low oil prices, limits under its recent reforms, determining national oil company Petroleos Mexicanos SA’s role, managing contracts, and increasing certainty.

Eight bidding rounds since 2014 have attracted $59 billion of ongoing investment from 67 companies worldwide, Castro noted. “We believe we can stop our oil production decline in 2018 with the help of our foreign partners,” he said. “The most important thing is that certainty is protected by the constitution. That will keep any executive order from stopping or halting the process.”

Castro noted that transparency is Mexico’s main goal. “To remain competitive, we’ll need to continue doing things right through various agencies. We plan to do another deepwater round next year and intend to have more data available,” he said.

Zapata added, “If governments in Latin America could be clearer on protections for investors, real progress could be made.”

Contact Nick Snow at [email protected].