Doing Businness in… Mexico

March 2014

Dr. Jesús Zaldúa

Key Data

The current population (2013) of the United Mexican States is estimated to be about 117.41 million people, which is an increase of 4.6% from the last record of the population. The population of the country has been historically greater then the population of Canada, and second rank in Latin-America after Brazil.

Year Population Percent (millions) Increase2015 119.874 2.10%2020 125.663 4.80%2025 130.712 4.00%2030 134.983 3.30%2035 138.275 2.40%2040 140.554 1.60%2045 141.861 0.93%2050 142.253 0.27%

México Population

Inflation and growth in Mexico (%)

Fuente: Banxico, INEGI

-8

-6

-4

-2

0

2

4

6

8

10

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Crecimiento PIB (%) Inflación (%)

Mexico has had a sustained growth of 3.5% for three years in a row, and until lately a relatively controlled inflation.

For year 2013 it is expected that Mexico will have an inertial growth and inflation of 3.5%.

Key Data

Electric Energy Production

Fuente: EIA, http://www.eia.gov/

Total

Renovables

Renovable sin Hidro

Key Data

Fuente: EIA, http://www.eia.gov/

Renewables

Renewables without Hydroelectric

Difficulty to reach goal

Goal 35% in 2024

Key Data

39,307MW

CFE

PIE

12,213MW

Installed Capacity for PS - 2012

• By the end of 2012, the installed capacity for public service (SP) was 51,510 MW, of which 39,307 MW belonged to CFE and 12,213 to Independent Energy Producers (PIE).

• Also, there were an additional 7,500 MW of self-sufficiency throughout the different modalities allowed by the law.

Key Data

Wind Power 1,218

63%

HYDRO 142

7%

FV 1.00%

BIOMASA 536

28%

BIOGAS 45

2%

MW en operación

Total: 1,942.0 MW

Key Data

In 2012 there were 1.370,45 MW installed

Key Data

It is estimated a potencial of 15.000 MW (10.000 of them of

class I and II)

• Secretaría de Energía (SENER) designs the energy policy.

• CFE Public enterprise vertically integrated, it owns 65% of the generation, and also the transmission and distribution lines. Acts as a unique market, stablishing the unique tariffs for all different types of consumers, except those in personal consumption.

• Comisión Reguladora de Energía, CRE, is the market regulator.

• Private Generators that embrace one of the contemplated figures by law (explained in the following slides). They make 30% of installed capacity, and are concentrated in the gas sector (combined cycles and conventional, gas turbines); in lower measure, in renewable energies. Almost all new investments are by private agents and it is expected that their imprtance will grow.

Key Data

New Energy Reform Highlights

Private Investment and National Content Encouragement•Allows private investment generation and comercialization of energy, also transmission and distribution with a contract by the Electrical Comission (CFE)•The Federal Electricity Commission (CFE) will become a State Productive Entity

Energy sector priority• Forsees to give priority to the exploration and extraction of

hydrocarbons, also to the public service of transmission and distribution of electric energy over any other activity that may occur on that land.

New Energy Reform Highlights

• Creation of the National Energy Control Center (CENACE)• This Center will be in charge of the operative control of the

national electric system.

• Creation of the National Agency for Industrial Safety and Enviromental Protection• Will supervise and regulate the protection of the

environment, instalations and activity of the sector.

New Energy Reform Highlights• Promotion of the sustainable growth

• Focalized subsidy for energy creation

• Lower corruption in the energy sector

Moving Beyond Oaxaca

• Great wind factor in different states

• New market and social relationships

• Extended lands ready for wind farms

Sitios más interesantes (por Estado)• Baja California Norte: Zona de Sierra de

California, alguna zona costera occidental y zona norte del Golfo de California. [2500-3000 HEN]

• Baja California Sur: Alguna zona costera occidental. [2300-2800 HEN]

• Sonora: Zona norte del Golfo de California y Sierra Madre Occidental (límite con Chihuahua). [2300-2800 HEN]

• Chihuahua: Zona de la Sierra Madre Occidental. [2500-3000 HEN]

• Coahuila: Zonas de la Sierra Madre Oriental. [2300-2800 HEN]

• Zacatecas: Frontera con San Luis Potosí en zona sureste. [2300-2800 HEN]

• San Luis Potosí: Zona oeste, límite con Zacatecas. [2300-2800 HEN]

• Querétaro: Zona noroeste (límite con Zacatecas). [2300-2800 HEN]

• Aguascalientes: zona noreste (límite con Zacatecas). [2300-2800 HEN]

• Tamaulipas: Zona noreste. [2500-3000 HEN]

• Puebla: Zona de Tehuacan. [2700-3200 HEN]

• Oaxaca: Zona del Istmo, sierras al noroeste y suroeste del Istmo. [3000-4000 HEN]

• Chiapas: Sierra de Chiapas. [3000-3500 HEN]

• Hidalgo: Zonas de la Sierra Madre Oriental [2300-2800 HEN]

• The resource was measured at 80m• Possible protected zones were not accounted for• Mountainous zones may have problems with access and altitude

Moving Beyond Oaxaca

Moving Beyond Oaxaca

State MWOaxaca 1751.47Baja California 10.6Chiapas 28.8Nuevo León 22Jalisco 50.4Tamaulipas 54

OPERATION

State MW

Oaxaca 559.00

Baja California 155.1

CONSTRUCTION

Environmental Issues

• Working with the Environmental and Natural Resources Secretariat (SEMARNAT) to elaborate the new regulation for wind farms construction, operation and abandonment.

• Working side by side with SEMARNAT to develop the new regulations for bird and chiropteran studies needed in every wind farm project.

Land Tenure

Most of the wind farms in Mexico are built in communal land. Communal is the possession of primary lands in our country that allows the individual property jointly with communal property rights.

The holder of a share in communal lands can rent their lands, but can not alienate or mortgage without previous consent of the Holders Assembly. These are the most common contracts for communal lands:

Usufruct Contract: guarantees the usage and usufruct of the land for the development, installation, construction and operation of wind turbines, transmission lines, substations and all other infrastructure needed to carry through such activities.

Right Contract: guarantees the right of means for construction of roads and utilization of existing ones, making of high and medium voltage transmission lines, both aerial and subterranean.

Land Tenure

To register these contracts you need the complete file before you preent before the National Agricultural Registry of that state, the file must at least contain:

• Notarial contracts

• Payment of rights

• Land Subdivision Certificate of the holder

The main problem usually is the lack of documentation that confirms the property in the communal land, this is because the holders normally transfer this lands without any contracts to certify the transition.

The execution of a contract allows the land holder to present credit applications in any bank, with which they can guarantee the payment commitment of the obtained obligations.

.

Grid Access Conditions

• How it worked before:• Lack of grid access lead to Temporada Abierta (TA) Oaxaca I

• Developers needed to invest in the TA I grid and transport cost to be able to use the transmission lines

.

Grid Access Conditions

• Working together with CFE and the Energy Regulator Comission (CRE) to update the Electrical Infrastructure (EI) conditions:

• Develop a new businness plan with new financing plans, assesment and selling lands to developers

• The state builds the electrical infrastructure

• Financing the EI with new fees to all users.

THANK YOU