oil rent

Oil and gas are property of the Nation, they belong to all Mexicans. Consequently, what we Mexicans want is for social profitability to be maximized in the use of that wealth found in the subsoil. Four points are relevant.

First, define the rate of exploitation of this non-renewable natural resource. In principle, the rate at which oil and gas would be extracted depends on the price observed in the market, the price expected in a given time horizon (for example, one year) and the expected profitability in the use of the net income from extraction costs, that is, the social profitability of oil revenues. If the price is expected to increase more than the rate of return, it is advisable to partially postpone the extraction; on the contrary, if there are projects that have a rate of return higher than what is expected, the price changes, it is convenient to extract it in the present, channeling surpluses to a savings fund.

Second, who should extract from oil and gas with the sole objective of maximizing oil rent. Current legislation establishes that production can be carried out by Pemex and by private companies. Since the objective is to maximize income, exploitation has to be carried out by those who do it at the lowest possible cost. If they are private companies, go ahead; it is in our interest as owners of hydrocarbons.

Third, the use of income. Given that the hydrocarbons that are in the subsoil form part of the wealth of all Mexicans and that it is a non-renewable resource, the oil rent must be used to increase the productive and reproducible capital of the economy, that is, the resources proceeds from exploitation have to be invested, on the one hand, in physical capital (infrastructure such as roads, ports, airports, electricity, urban energy, etc.) and, on the other, in human capital (education and health); what it is about is transforming non-renewable wealth into wealth (capital) that generates a continuous and growing flow of national income. The income should never be used to finance current spending, including fuel subsidies; This implies the destruction of national wealth.

Finally, we have the principal-agent problem. When we say that hydrocarbons are the property of all Mexicans, we, the almost 130 million, are the “principal”. Given that it is not only impossible, but also inefficient for all of us to participate directly in the decisions concerning this non-renewable natural resource, we appoint an “agent” to act on our behalf and with the task of maximizing oil income and social profitability. of its use.

In our political system we actually have two agents. On the one hand, the ones who have to take care of the interests of the owners are the federal deputies. They have to be the ones who establish efficient rules of the game in the exploitation and use of hydrocarbons, as well as appointing the director and independent directors of the state-owned company. The other agent is the President of the Republic, who carries out the execution subject to the rules established in Congress. And this is where the principal-agent problem arises. Neither the Congress and even less the president act to take care of our interests as owners of the resource (maximize profitability), but rather seek to maximize their own welfare function (popularity).

We see this clearly with the decisions that President López, with a submissive Congress, has taken on energy matters. He, with an unhealthy obsession regarding who should be the producer of oil and gas, as well as with the price for fuel consumers, not only is he not maximizing oil income (by privileging the very inefficient Pemex over private producers), but instead of investing in physical and human capital, the income generated is being used to finance current spending and subsidies.

What the government is doing goes against the interest of Mexicans who, without a doubt, aspire to be richer and richer.

Twitter: @econoclasta

isaac katz

Economist and professor

Point of view

Knight of the National Order of Merit of the French Republic. Medal of Professional Merit, Ex-ITAM.

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