MEXICO CITY, July 5: Mexico’s planned overhaul of oil monopoly Pemex should allow foreign firms a bigger role in crude production, but the nation’s energy riches must remain in state hands, a senior conservative lawmaker said on Thursday.
The opposition conservative National Action Party (PAN) has spent years pushing for a shake-up of Pemex and is seen as a natural ally for President Enrique Pena Nieto in his bid to find more capital to reverse Mexico’s flagging oil output.
Jorge Luis Preciado, Senate leader of the PAN, told Reuters the reform, which is expected by September, should include a change in the constitution to permit greater participation by private companies, an idea he expected the government to back.
He was referring to proposals to change the hotly-debated section of article 27 in the constitution, seen as a legal obstacle to granting third parties contracts or concessions to participate directly in the oil sector.
Mexico presently permits private companies to partner with Pemex on a wide range of service contracts, but explicitly prohibits profit or production sharing agreements.
‘A national industry should be created with private capital and obviously with foreign capital, provided the national private capital is higher,’ Preciado said in an interview. ‘I believe (the government) will put forward the possibility of opening up article 27 to private and foreign investment.’
The government says that Mexico must open up Pemex to more private investment to turn around the fortunes of an industry that has seen crude oil production slip by a quarter since 2004 to just over 2.5 million barrels per day in 2013.
That is still nearly 40 percent of U.S. Output, but Pemex is struggling to cope with a crushing tax burden, huge pension liabilities and the challenge of replacing ageing oil fields.
Pena Nieto hopes the injection of private capital can help Pemex exploit areas where it lacks technological expertise, such as in deep water oil production and shale fields.
PROTEST RISK
Moves to change the constitution are likely to be meet stiff opposition from Mexico’s left, which argues they are not needed. It is particularly adamant that article 27 not be touched, saying that would open the door to the privatization of Pemex.
Instead, Mexico’s main leftist group, the Party of the Democratic Revolution (PRD), says a law regulating the implementation of that part of article 27 can be changed to open up the industry. But Preciado said that would not be enough.
Pena Nieto has denied he wants to privatize Pemex and Preciado said the revamp should ensure crude oil remained the property of the state, which is enshrined in article 27.
That would imply that oil majors could not take any ownership of the reserves under a new regime.
Still, Preciado said there should be scope for outside companies to share in profits generated from oil exploitation.
‘I think this could be part of the reform,’ he said.
Reforming Pemex is a core plank of the government’s plan to ramp up economic growth to six percent per annum from little more than two percent since the start of the millennium.
Last month, the PRD set out a plan to revive Pemex which focused on giving the company operational autonomy and reducing its stifling tax burden, ideas for which there is broad consensus across the political spectrum.
But Preciado said the PRD’s rejection of constitutional changes, which require a two-thirds majority in Congress, meant that the reform would depend on cooperation between the PAN and Pena Nieto’s centrist Institutional Revolutionary Party, or PRI.
That could leave the government exposed to attacks from leftists planning big street protests against Pena Nieto’s plans for Pemex, which has been a symbol of Mexico’s self-sufficiency ever since the oil industry was nationalized in 1938.
The energy bill is expected to be presented in tandem with Pena Nieto’s other main remaining project for the year, a fiscal reform designed to improve Mexico’s paltry tax take.
Pemex revenues account for about one third of the federal budget and the government sees lowering the tax burden on Pemex as an integral part of energy reform.
Weaning the government off Pemex could take at least 20 years, said Preciado, who was in favor of raising more tax from the rich and imposing levies on areas that have hitherto been exempt, like stock market capital gains. (agencies)
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