Mexican President Enrique Pena Nieto Proposes To Open Closed Energy Sector To Private Firms

 
on June 18 2013 3:07 AM
  • Pemex
    Pemex was established as Mexico's state oil company in 1938. Reuters
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    Safety helmets are seen on the wall in the security area of the Mexico's state-run oil monopoly Pemex platform "Ku Maloob Zaap" in the Northeast Marine Region of Pemex Exploration and Production in the Bay of Campeche April 19, 2013. Picture taken April 19, 2013. REUTERS/Victor Ruiz Garcia
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The six-month-old administration of Mexican President Enrique Pena Nieto has proposed to open up the nation's state-run energy sector to private investment and competition, to improve output and boost wider development.

Pena Nieto’s government is seeking to push reforms in Mexico's energy sector, which has remained closed to outsiders for about 80 years, to free up some of Petroleos Mexicanos, or Pemex, resources to private energy firms. This will allow them to produce oil and gas through profit-sharing deals and joint ventures with the state-owned monopoly, the Wall Street Journal reported, citing three high-level government sources and ruling party officials, who gave details of the proposed reform for the first time.

"We want an in-depth reform that gives legal certainty to companies, not another partial step. We want to make it crystal clear in the constitution how they [private firms] can participate," said a high-level Energy Ministry official, the Journal reported.

Pemex, which has vast deep-water oil deposits, has struggled to increase its output in the last eight years due to a lack of investment and advanced technologies that exists in countries like the United States.

Mexico, which has abundant reserves of petroleum and natural gas, needs modernization to increase production as the country's strong economic growth is causing energy demand to outpace the supply. The country could become a net oil importer as early as 2020 if the government fails to implement significant reforms and deploy the required resources to develop deep-water reserves.

The crude output in Mexico has seen a steady decline since 2004, when output was at a peak of 3.4 million barrels, and stagnated at around 2.5 million barrels a day.

The proposal, which considers awarding long-term contracts for designated areas and allowing private firms to book oil reserves, has not yet been released to the public.

To convert the proposal into law would require amending Mexico's constitution, necessitating a two-thirds majority vote in Congress. But, officials are optimistic that they can get the required votes to get the proposal approved without drastic changes.

"If they finally do it, this would undoubtedly be a game-changing reform," Carlos Elizondo, a political analyst at Mexico's CIDE college and research institute, told the Journal. "That's the kind of change in the oil sector that every government in Mexico has dreamed of, and hasn't been able to do, for the last 20 years."

The energy sector is very important to Mexico’s economy and if the bill passes, it will add as much as two percentage points to the country's GDP, according to the Journal. 

Mexico's economy grew at 0.8 percent in the January-to-March quarter and at 3.9 percent in all of 2012. It is expected to grow at 3.1 percent in 2013.

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