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The Pemex Debate

Energy reform opponents barricaded the podium of Mexico's Congress. (AP Images)

April 15, 2008

As a battle grows over how to restructure Mexico’s state-owned oil company, the future of proposed energy reform appears increasingly uncertain. While those criticizing the reform of Petróleos Mexicanos (Pemex) argue the changes would lead to privatization, proponents say the bill would open the door to necessary investment that would help resolve the country’s lagging production woes. Yet some analysts say the reform may not go far enough.

Oil accounts for roughly 40 percent of Mexico’s budget, yet Pemex faces mounting production problems that threaten the country’s economy. According to recent figures delivered by Mexican Energy Secretary Georgina Kessel Martinez, production has continuously declined over the past three years and faces the possibility of a drop in production by as much as 800,000 barrels a day by 2012. Mexico fell from being the world’s sixth largest oil producer in 2004 to the world’s eleventh in 2007.

When Pemex was nationalized in 1938, laws were introduced to make Pemex the sole oil operator in Mexico, barring foreign direct investments. With proven reserves falling—along with profits—the government of President Felipe Calderón introduced an April 8 energy reform bill to Congress to boost the ailing giant. Emphasizing that “petroleum is and will continue to belong exclusively to Mexicans,” the president included a number of initiatives in the proposed legislation: increased managerial autonomy to reinvest surplus funds, a new administrative structure, contracts for private firms to construct new refineries, and the creation of credit bonds available for purchase by Mexican citizens. Because the reforms do not require a constitutional amendment, the bill would gain approval with a majority vote.

Despite Calderón’s repeated assertions that bill will not lead to privatization, critics from the opposition party—the Democratic Revolution Party (PRD)—say the bill paves the way for just that. Some of the opposition to the reform package stems from lingering resentment over nationalization of the country’s telecommunications industry in the early 1990s, leading to monopoly control in the hands of a private consortium. Congressional opponents to the energy reform bill have demonstrated, engaged in hunger strikes, and barricaded Mexico’s lower house of Congress. With the PRD’s Andres Lopez Manuel Obrador—who lost narrowly to Calderón in the 2006 presidential election—threatening to lead continued strikes against the proposal, the bill may not gain the Senate’s consideration before Mexico’s Congress recesses at the end of April. The protesters want a four-month national debate on the reform; Calderón’s National Action Party (PAN) and the Institutional Revoluntionary Party recommended a 50-day debate instead. For now, the two sides have reached a stalemate.

Meanwhile, nearly two-thirds of Mexicans support opening up Pemex to build alliances with other partners, according to a recent poll by Mexican newspaper Reforma. The Economist warns that the bill provides “timid reforms, watered down after months of fierce debate,” but that the legislation does offer the opportunity to attract private investment and outside expertise. An op-ed in Latin Business Chronicle concurs, saying that reforms are necessary for Pemex to gain the success enjoyed by other state oil companies, such as Brazil’s Petrobras, Norwegian’s Statoil, and Malaysia’s Petronas. The Dallas Morning News says Calderón has taken “a high-stakes" risk with the reform package and that “for the sake of Mexico’s modernization and economic future, this is a gamble we hope he wins.”