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Business & Technology
Dec 8 2013 6:14PM
Mexican senate offers plan to open oil to private firms
Mexican president Enrique Pena Nieto. Picture: AFP
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A Mexican Senate committee unveiled a proposal Saturday to reform the state-run oil sector, opening the door to private companies and investment for the first time in decades.

The ambitious plan to reform Mexico's energy industry and state oil giant Pemex would allow the government to let private firms explore for and extract oil and gas, a practice currently banned by the constitution.

It maintains however the existing ban on oil concessions.

The committee will begin discussing the proposal on Sunday, and expects to submit it for consideration by the full Senate next week.

Changes to the oil sector strike at the heart of modern Mexico's national identity. In 1938 then president Lazaro Cardenas nationalized the foreign-operated oil industry, a wildly popular move that asserted Mexico's right to its own mineral wealth.

Cardenas also founded Pemex, which despite its many problems remains one of the country's most important sources of income from exports.

Pemex oil production has fallen from 3.4 million barrels per day in 2004 to 2.5 million in the third quarter of 2013. Critics say the company has failed to invest in equipment maintenance and exploration, it is riddled with inefficiencies, and its unions are bloated and corrupt.

In August, President Enrique Pena Nieto unveiled a controversial reform plan to open the oil sector to foreign investments in order to increase production and modernize the state-run company.

Reforming the energy sector would be one of the most outcomes of the Pact for Mexico, an agreement between the country's main political parties and the Pena Nieto administration to move ahead a package of major structural reforms that will stimulate economic growth.

The text of about 300 pages, released to the press, stated that Article 27 of the constitution would be amended to allow "exploration and extraction through allocations to productive state enterprises through contacts" to be defined in a secondary law.

Lawmakers will also have to define the standard contracts that the Mexican government could draft with private investors; the deal could allow contracts for profit- and production-sharing, along with licensing.

"In each case, the state shall define the contractual model best suited to maximize the nation's revenue," the document said.

Calling the current model "inappropriate and excessive," it called for finding a legislative mechanism that would not compromise state ownership of oil while at the same time attract private capital to explore and extract hydrocarbons.

The leftist opposition accuses Pena Nieto of trying to privatize Pemex, 75 years after foreign firms were thrown out of the energy sector.

Pena Nieto rejects the accusation, saying his proposal calls for profit-sharing deals with private firms while the oil would remain Mexico's property.

The conservative National Action Party (PAN), which favors the move, wants to go even further and was hoping for changes that would allow for private concessions.

However the leftist Party of the Democratic Revolution (PRD) opposes any changes to Mexico's constitution that affects the oil industry.

The PRD holds Cardenas as their ideal Mexican president. The iconic president's son, Cuauhtemoc Cardenas, is a party founder and former PRD presidential candidate.

The PRD is especially strong in the nation's densely populated capital, and party supporters have been camped around the senate protesting the proposed constitutional reform for days.


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