Mexico president unveils energy reform plans to lure private sector

13 August 2013 03:16  [Source: ICIS news]

MEDELLIN, Colombia (ICIS)--Mexico’s president, Enrique Pena Nieto, unveiled on Monday proposals to overhaul the country’s energy sector that will allow profit-sharing agreements between state-run oil company Pemex and private firms.

The proposals, outlined in a 29-page document made available on the presidential website, include controversial changes to articles 27 and 28 of Mexico’s constitution to allow private and foreign investment.

Existing Mexican law limits energy production by foreign companies as equity stakes and joint ventures are prohibited. Instead, Mexico can pay third-party companies through service-type contracts.

The proposals also entail the restructuring of Pemex and its subsidiaries into two divisions: exploration and production; and industrial processing. The president stopped short of yielding state ownership of the country’s energy resources.

“Pemex and CFE (the federal electricity commission) will not be sold nor privatised,” said Pena Nieto in his proposal. “They will continue to be 100% Mexican companies and 100% public companies. Strengthened, competitive and efficient,” he said.

If the measures are approved, crude production could increase from current levels of about 2.5m bbls/day to 3m bbls/day by 2018, and to 3.5m bbls/day by 2025, and double gas production to 10.4 billion cubic feet (bfc) over the same period, the president said.

The proposals would also address Mexico’s dependence on imports of refined products and petrochemicals, which are a result of the country’s “limited refining capacity”, he said.

The proposed changes also seek to improve the transparency and accountability of Pemex, and reduce the company’s tax burden. Mexico’s government currently depends on oil revenues to fund around a third of the federal budget.

It is unclear how the proposals would be received by the Mexican population. Pemex was founded in 1938 following the expropriation of the nation’s hydrocarbon resources, and for many Mexicans, the company embodies the ideal of national independence from foreign intervention.

Protests broke out on Friday at the Pajaritos petrochemical complex against private firm Mexichem’s involvement at the facility, and angry demonstrations rocked Mexico City in July in defence of Pemex. Some commentators are predicting further protests following the president’s announcement.

The opposition Democratic Revolutionary Party (PRD) has said it would oppose any changes to the constitution, and is expected to submit its own energy reform proposals in the coming days, according to the party’s website.

Meanwhile, Pena Nieto will have to depend on the support of his own Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN) to secure the two-thirds majority he requires to push the bill through the country’s senate.

The proposals would then have to be ratified by 17 of the country’s 32 state legislatures, according to the presidential website.

By: Simon West

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