By ADAM WILLIAMS and NACHA CATTAN
Mexicos seven-decade state energy monopoly is one step
closer to allowing private oil investment after Senate
committees voted in principle to approve a bill that allows
output sharing and licenses for outside companies.
Lawmakers from three Senate committees approved a bill
yesterday that would allow private companies from ExxonMobil
to Chevron to develop fields in the largest unexplored crude
area after the Arctic Circle as state-owned Petroleos
Mexicanos seeks to reverse eight years of falling
The legislation would allow companies to log crude reserves
for accounting purposes, which may make it easier to secure
Senate committee members from President Enrique Pena
Nietos ruling Institutional Revolutionary Party, or
PRI, and the opposition National Action Party, known as PAN,
approved the joint bill with a total of 24 votes in favor and
Debates were slowed yesterday by protests from the Democratic
Revolution Party, or PRD, which opposes the initiative. The
partys senators are expected to try to delay a
full-house vote in Senate, which could be held as soon as
today, according to PRI Senator David Penchyna.
We can expect to continue to see some kind of attempts
to block things in both the Senate and Congress
chambers, said Jeffrey Weldon, a political scientist at
the Mexico Autonomous Technological Institute in Mexico City.
The bill will likely be passed, though the PRD will do
its best to keep it from going smoothly.
At one point during committee debate yesterday, PRD Senator
Adan Augusto Lopez played a recording of the US national
anthem on his mobile phone to protest what his party says
will be the delivery of Mexicos oil resources to US
companies. PRD lawmakers argued the proposed overhaul will
cause Mexico to lose sovereignty and control of its energy
The joint bill announced by the PRI and PAN on Dec. 7 ended
four months of political wrangling following the release of
separate energy plans. The government estimates an energy
overhaul would lift economic growth 1 percentage point by
2018 and reverse production losses.
When the constitutional amendment is approved, Congress
would then need to pass ordinary legislation spelling out all
Molchanov, an analyst with Raymond James Financial Inc., said
in a research note. The policy
influence the extent to which foreign investment flows
Pena Nieto, the 47-year-old former governor who returned the
PRI party to power a year ago, has called the oil overhaul
the cornerstone of his administration.
Senators from the PRI, PAN and allied Green Party have the
two-thirds majority needed to pass the bill in both houses
and are seeking to amend the nations charter to allow
private and foreign energy companies to pump oil in
Mexicos $95 billion/year industry for the first time in
Similar to the concession model proposed by PAN, licenses
would grant broader operational control than the
governments initial profit-sharing model and allow
companies to manage oil directly. In production-sharing
contracts, companies can register crude reserves as assets
for accounting purposes, the bill says. The oil remains state
property until it is pumped.
Although licenses will mimic concessions, we believe
they could be politically more palatable than concessions as
all of the oil reserves belong to the state, Alberto
Ramos, chief Latin American economist for Goldman Sachs, said
in a research report. Licenses are akin to concessions
as they allow companies to take control of oil at the well
head by paying royalties and taxes to the government.
The 295-page initiative calls for changes in Articles 25, 27
and 28 of Mexicos Constitution. It also sets 21
mandates to be fulfilled with secondary regulations to be
drafted next year.
Senator Manuel Bartlett, of the Labor Party, said that most
of the elements -- if not all -- will be challenged after the
vote in principle.
The bill also proposes the creation of a sovereign fund,
originally proposed by PAN, which would be used to manage oil
profit for long-term investment and savings.
The sovereign fund will be a public trust that will be
operated by Mexicos central bank, which will act as
trustee, and receive earnings derived from contracts.
Licenses will be used principally for shale-gas exploration,
according to PAN Senator Jorge Luis Lavalle. Mexico has
shale-gas resources of as much as 460 trillion cubic feet,
according to data compiled by state oil company Pemex.
While Jorge Luis Preciado, the PANs leader in the
Senate, says that licenses arent the same as
concessions, Houston-based energy consultant George Baker
said the models are very similar.
Its a 180-degree turn for Mexico, Baker
said in a telephone interview on Dec. 7. I never
thought they would do that.
The bill also will seek to promote alternative energy sources
in Mexico through investments, said Senator Ninfa Salinas,
whose Green Party forms part of Pena Nietos coalition
The congressional session ends Dec. 15. Emilio Gamboa, the
Senate leader for the PRI, said last month that he expected
senators would agree to extend the legislative process
through the end of the year if needed to pass constitutional
changes to open the energy industry.