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Mexico nears energy bill, oil to remain in state hands

Source: Reuters - Sat, 7 Dec 2013 03:11 AM
Author: Reuters
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By Dave Graham and Ana Isabel Martinez

MEXICO CITY, Dec 6 (Reuters) - Mexican senators on Friday neared agreement on a bill that would allow private investors to drill for oil and market the country's black gold, but keep ownership of the crude in state hands.

The draft bill breaks with 75 years of tradition in Mexico, where the 1938 expropriation of foreign oil companies helped to forge its modern self-image, and President Enrique Pena Nieto aims to pass his most ambitious reform before Christmas.

But mindful of the resistance it faces on the left against opening up the oil industry, the government has sought to tread carefully, stressing that it will not put ownership of the country's oil wealth in private hands.

A deal hinges on talks between Pena Nieto's Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN), which had espoused a more radical vision of reform for the oil industry, including offering concessions to private operators, a line the PRI will not cross.

Jorge Lavalle, a senior PAN energy expert in the Senate, said the two sides were close to an agreement on what kind of contracts can be offered, including production-sharing deals and licenses that could give companies much more freedom.

But he said Mexico would remain the owner of the oil.

"They won't be able to book reserves of hydrocarbons coming from Mexico because hydrocarbons are and will remain property of the nation," Lavalle told Reuters.

Lavalle said production-sharing contracts could allow companies to be paid with oil instead of cash, but a senior PRI lawmaker, speaking on condition of anonymity, said this was not on the cards because it implies handing over the crude to outsiders.

When unveiled by Pena Nieto in August, the proposal aimed to offer only profit-sharing contracts to private investors, but the PAN and elements of the PRI argued this would not be sufficient to attract major investment to the industry.

"We are not going to tie ourselves to one model," said Francisco Dominguez, a PAN senator who sits on the energy committee in the upper chamber of Congress.

"The PAN proposed concessions, but that creates a lot of noise. Licenses are exactly the same, and that's what they use in different places like Brazil and Norway," he added.

Instead, the revised draft will give companies scope to operate across the industry, in the hope the shake-up will reverse nearly a decade of declining production, lawmakers said.

IRONING OUT DIFFERENCES

The reform would allow private companies to form partnerships with state oil monopoly Pemex, which was created after the 1938 expropriation.

PRI lawmakers said the bill was likely to allow private companies to market the oil, but stressed that the commodity would still remain under the ownership of Mexico.

The reform, one of a series of measures Pena Nieto has unveiled to ramp up growth in Latin America's no. 2 economy, aims to change the constitution to make new types of contracts possible.

For that, the government needs to secure two-thirds of the votes in Congress, but the PRI does not even have a simple majority and needs PAN support to pass the bill.

PRI Senators had aimed to present the draft bill early on Friday but the plan was delayed until the weekend to give time for the two sides to hammer out a consensus.

The party has been at loggerheads with the PAN over details of the reform, such as how to manage a planned sovereign wealth fund to be created from oil revenues.

While the PRI wants to make sure the Finance Ministry oversees the fund, the PAN wants an autonomous body.

PROTESTS

Outside the Senate in downtown Mexico City, hundreds of federal police stood guard as scattered groups of protesters held speeches against the energy bill in front of a huge cordon of metal barricades erected to protect the building.

Graffiti, posters and banners plastered on the barricades denounced the energy bill as a national betrayal, invoking symbols of the left and heroes of Mexico's pre-Hispanic past.

One spray-painted image depicted a grinning Pena Nieto, his trousers around his ankles and the words "Pemex is not for sale" written across his bare buttocks.

"Private companies aren't going to want to share their winnings with Mexico," said small business owner David Pacheco, 51. "The capital always ends up taking flight."

Crude output at Pemex has fallen by a quarter since peaking at 3.4 million barrels per day in 2004, and its management says it needs a huge injection of capital.

However, many Mexicans believe the plan is a covert bid to sell off the company, which despite a string of corruption scandals over the years has remained a potent national symbol.

Franco Quadros, 61, said he would camp outside the Senate all night to protest. The bill could lead to the kind of privatization that helped make Carlos Slim the world's richest man after he bought state phone monopoly Telmex two decades ago, he said.

Officials said senators should unveil the draft bill at the weekend and that they still hope to pass it as soon as next week.

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