Breaking Up Is Hard To Do: Will Mexico's New President End Pemex's Oil Monopoly?

  @crvillarreal on March 20 2013 5:49 AM
Pemex
Pemex was established as Mexico's state oil company in 1938. Reuters

Mexican President Enrique Peña Nieto is looking to open up the state-owned oil industry to private investment 75 years after it was nationalized.

The state oil company Petroleos Mexicano, or Pemex, holds the rights to the exploration, extraction and processing of Mexican petroleum, which has been secured as national patrimony under the constitution since 1938.

In a speech commemorating the 75th anniversary of the expropriation of Mexico’s oil industry from foreign companies by President Lazaro Cardenas and the establishment of Pemex, Peña Nieto said the company needed to change without going into specifics.

“The transformation of Pemex is indispensable to free up Mexico’s great economic potential,” Peña Nieto said Monday, according to Reuters.

Pemex draws in about $110 billion in annual revenue, which provides the Mexican government with around 40 percent of its budget.

Critics of the state oil giant, which is a monopoly, have pointed out inefficiencies, which they say are the result of corruption, heavy taxation, a bloated workforce and a lack of reinvestment in the industry.

Oil production under Pemex has declined from 3.4 million barrels per day in 2004 to around 2.6 million barrels today.

Earlier this month, Peña Nieto’s Institutional Revolutionary Party agreed to “end its opposition to constitutional changes that would ease state-owned Pemex's grip on the oil industry,” VOXXI reported.

No bill has been introduced yet that proposes constitutional amendments to allow for the breakup of Pemex’s oil monopoly, but the PRI’s recent consensus on ending opposition to such a proposal indicates that legislation will be forthcoming.

It is not clear how Peña Nieto and the PRI would restructure Pemex, but the oil refining division, which is operating at a loss of around $2 billion a year, is a likely place to start.

In order to amend the constitution, a two-thirds vote is required in both chambers of the Mexican Congress. But the PRI’s coalition holds only 241 seats out of 500 in the Chamber of Deputies and 52 seats out of 128 in the Senate.

In anticipation of oil industry reforms, leftist politicians organized demonstrations Monday to protest any attempts to sell or privatize Pemex.

“We are being loyal to this historical legacy that has given our oil riches to the nation and we are going to defend it with everything we’ve got,” said Jesus Zambrano, president of the leftist Party of Democratic Revolution, during a rally Monday, Reuters reported.

However, Peña Nieto added confusion to the issue by saying that "Pemex be will neither be sold, nor will it be privatized,” adding that the company is a “symbol of progress and national identity,” Xinhua reported.

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