Mexico’s Senate approves opening state run oil industry to foreign, private firms

Peña Nieto at the World Economic Forum. Photo courtesy of World Economic Forum / Flickr.

MEXICO CITY—Mexico’s Congress approved a comprehensive energy reform that will break more than seven decades of state monopoly and dramatically expand the role of foreign and private companies in the country’s oil and gas industry.

The package of new laws approved will now go to the desk of President Enrique Pena Nieto, who has made energy reform the cornerstone of his platform to expand Mexico’s economy and make the country a global competitor.

His other reforms have included rewriting telecommunications, education and election laws.

“Of all the reforms that have been done up to now, this is without doubt, the most important,” said Carlos Capistrani, chief economist in Mexico for Bank of America Merrill Lynch. “It has the potential to transform Mexico.”

The final pieces of legislation were approved by lawmakers late Wednesday. The first calls for bids on new oil concessions and contacts are expected to be issued sometime in 2015.

The Mexico government has advocated opening the country’s oil and gas sector as a way to bring billions of dollars in new investment and boost the country’s flagging oil production, currently about 2.5 million barrels a day.

The package of laws regulates the private oil and gas drilling that will be allowed for the first time since the industry was nationalized 76 years ago.

The overhaul is supported by the governing Institutional Revolutionary Party, or PRI, the conservative National Action Party and a smaller party that together formed the majority to get it passed.

Arguing against the legislation, leftist lawmakers brought a life-size picture of the late President Lazaro Cardenas on to the floor of the Senate to press their case that the governing party betrayed the beloved leader who expropriated foreign oil holdings in 1938. They contend the changes amount to the privatization of the oil industry, while saddling taxpayers with the legacy of past corruption and mismanagement at the state-owned oil company, Pemex.

Legislators earlier approved several laws implementing 2013 constitutional amendments meant to reverse declining oil production by spurring deep-sea and shale gas exploration with foreign expertise.

Mexican oil production peaked at about 3.4 million barrels a day in 2004, and it has fallen steadily since then, to about 2.

5 million barrels a day.

The new rules also authorize private production of electricity.

The measures approved Wednesday are among the most controversial parts of the energy overhaul, including a provision to transfer about one-third of the state oil company’s enormous pension debts to the books of the federal government. The pension debt, including similar pension liabilities at the state electricity company, totals around 1 billion, which is equal to about 10 per cent of Mexico’s GDP.

Opposition senators said any graft, malfeasance or corruption in those pension accounts should be cleared up before taxpayers are saddled with the debt.

For decades, the PRI ran Pemex and the country with little transparency or accountability. The party held the presidency from 1929 to 2000, and regained the office in 2012.

The PRI has had a long and cozy relationship with the oil workers union, which has been implicated in multiple instances of corruption.