Mexico Opens Energy Industry to Foreign Investment

In a historic move, Mexican congress members have voted to open the state-controlled energy sector to foreign investment for the first time in 75 years. The legislation will alter several articles of Mexico’s Constitution, allowing private multinationals to develop the country’s oil and natural gas resources for the first time since 1938, and is poised to become the nation’s most significant economic reform since the North Atlantic Free Trade Agreement.

In a historic move, Mexican congress members have voted to open the state-controlled energy sector to foreign investment for the first time in 75 years. On Thursday, President Enrique Peña Nieto applauded the legislation, which is poised to become the nation’s most significant economic reform since the North Atlantic Free Trade Agreement.

“The energy reform marks a fundamental transformation that will allow us to increase our energy sovereignty and self-sufficiency in Mexico,” Peña Nieto wrote on Twitter Thursday morning. “It will also drive productivity, economic growth and job creation in Mexico.”

The legislation will alter several articles of Mexico’s Constitution, allowing private multinationals to develop the country’s oil and natural gas resources for the first time since 1938, when former President Lazaro Cardenas nationalized the energy industry with the creation of Pemex, or Petróleos Mexicanos.


Though Mexico still owns its natural resources, foreign companies such as Exxon Mobil Corp. and Chevron Corp will be able to search, drill and open gasoline stations under contract with the Mexican state.


The end of the Pemex energy monopoly is expected to bring Mexico an additional $20 billion in foreign investment per year as multinationals race to tap vast deepwater oil reserves in the Gulf of Mexico. According to the U.S. Energy Information Administration, the region is the largest unexplored oil patch outside the Arctic Circle.

Yet in a country where local oil production has long been a source of national pride and is often equated with sovereignty, the reform has been heavily contested by opposition leaders from the Party of Democratic Revolution (PRD), who have said the measure should go before a national referendum.

“We warn all private, national and, above all, transnational businesses and companies that want to come and invest in Mexico and petroleum, in order to expropriate Mexican petroleum, to think again,” said Jesus Zambrano, president of the PRD. “The most probable outcome is that within a year and a half, a recall referendum will reject this change.”

On Thursday, PRD members blocked the entrances to the lower house’s main voting hall to prevent discussion of the bill. Antonio Garcia, a PRD lawmaker, even stripped down to his underwear during to symbolize a nation stripped of its wealth.

Regardless, members from the ruling Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN), met in an adjacent conference room where they passed the legislation with 353-134 vote. Peña Nieto is expected to sign the bill in February after it has been ratified by state legislatures.

Currently, Mexico is the 10th largest oil producer in the world and proponents of the reform say it could propel the nation into the top five by taking advantage of new extraction and deepwater exploration technologies that Pemex cannot afford.

After peaking in 2004, Mexico’s oil production has declined by 25 percent to 2.5 million barrels a day. During the same period, Pemex has more than doubled operational spending to $20 billion per year, gaining the company a reputation for inefficiency and corruption.

 

Still, Pemex revenues provide a third of Mexican government’s annual budget and the company’s 160,000 employees face an uncertain future as lawmakers finalize the reform details, which include the removal of all five representatives of Pemex’s worker’s union from the company board.

 

To put the PRI agenda in perspective, The Financial Times said “energy is the climax of a sweeping agenda of reforms, including telecoms, labor, tax and education, which Enrique Peña Nieto has championed in his first year as president.”

 

Sources:

El Pais: México cambia su historia energética a contrarreloj – http://internacional.elpais.com/internacional/2013/12/12/actualidad/1386888542_011957.html

Bloomberg: Mexico Passes Oil Bill Seen Luring $20 Billion a Year – http://www.bloomberg.com/news/2013-12-12/mexico-lower-house-passes-oil-overhaul-to-break-state-monopoly.html

New York Times: Mexico’s Pride, Oil, May Be Opened to Outsiders – http://www.nytimes.com/2013/12/13/world/americas/mexico-oil.html?hpw&rref=business

Financial Times: Mexico courts foreign investment with energy reform – http://www.ft.com/intl/cms/s/0/e2242e2c-632e-11e3-886f-00144feabdc0.html#axzz2nIk7FhZe

Wall Street Journal: Mexico Congress Passes Historic Energy Bill – http://online.wsj.com/news/articles/SB10001424052702303932504579254013051981266

Reuters: Mexican Congress passes radical shake-up of oil industry – http://ca.reuters.com/article/businessNews/idCABRE9BB16820131212