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The Uncertain Fate of Pemex

By Carin Zissis

After experts and officials complete more than two months of debate over how to best resolve Pemex's flagging production, Mexico's opposition party holds referendums on an energy reform package proposed by President Felipe Calderón. But neither the nonbinding referendum nor the long debate have determined Pemex's future structure.

For a good chunk of 2008, the question of how to reform Mexico’s state oil company has proven to be the country’s most contentious policy issue. Citing concerns over the floundering production rates of Petróleos Mexicanos (Pemex), the administration of President Felipe Calderón proposed reforms earlier this year with the goal of boosting refinery and exploration capabilities. The move—deemed a constitutional violation by the opposition—sparked protests by the opposition and led to more than two months of congressional debate over the reform’s future. Now a series of nonbinding, opposition-run referendums serve as another obstacle to Calderón’s energy reform package.

Pemex’s fate remains near and dear to the Mexican government, given that the company accounts for roughly 40 percent of the country’s budget. Yet production levels have been a problem in recent years, with Mexico dropping out of the world’s top ten oil producers (It held the number six spot in 2004, but fell to number eleven last year.). In March, Mexico’s energy secretary predicted that, without improved capacity, production could decline by as much as 800,000 barrels a day by 2012. Meanwhile, Mexico imports more than 40 percent of it gasoline because Pemex lacks sufficient refining capabilities.

Enter Calderón’s energy proposal: The president has championed reforms that would allow deep-water exploration contracts, private investment in refineries, and a more corporate management structure of the state firm. Constitutional law (PDF) dating back to 1938 places the country’s energy resources in state control. Calderón’s reforms avoid ending state ownership, thus requiring a legislative vote rather than constitutional amendment.

Yet it was in Mexico’s Congress that the reform hit a wall. Weary of private involvement in Pemex operations, congressional opponents shut down Congress in protest for two weeks in April. Members of the opposition Party of the Democratic Revolution (PRD) argued that, while something must be done to boost production, private involvement in Pemex remains unnecessary because of the record oil prices this year should result in sufficient funding. Still, the Mexican government said it gained no windfall this year while opposition leaders cry foul; an International Herald Tribune article examines how state subsidies have cut into Pemex’s profits.

After debating how long the reforms require debate, the two sides began 71 days of discussion. From May 13 through July 22, over 160 experts, officials, and scientists came together (PDF) to present ideas and solutions for a Pemex fix. “The debate has proven to be a fantastic exercise on democratic principles,” according to a Foreign Policy Association (FPA) blog, which credits the forum with bringing together opposing sides. But the FPA also warns that another democratic process—the referendums on the reforms held by the PRD—could serve as a roadblock to congressional approval. Though the PRD finds its leadership fractured, its members agree on their opposition to the reforms.

On July 27, the PRD-organized referendums were held in Mexico City and nine states, with voters opposing the reforms by more than 80 percent. Subsequent rounds will be held August 10 and 24. Turnout was remarkably low (only 11 percent of voters participated in Mexico City) on Sunday, and the results remain nonbinding on any decision made by Mexican Congress when it comes together again in September. The president responded to the low turnout figures, saying the opposition had failed to reach its objective.

Still, the votes “do have the power to irritate the government,” reports the Economist, which predicts Calderón will need to calculate to what degree he will allow the reform to be watered down. A date for a congressional vote on the reform has not yet been set, but division over the reform remains likely. Andres Manuel Lopez Obrador, Calderón’s opponent in the 2006 presidential elections, has pledged protests and roadblocks to prevent the proposal’s passage.

Read an AS/COA update about the debate over Pemex reform. 

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