The Guadalajara Reporter

Mexican Congress approves momentous energy bill, opens sector to private capital

After a 20-hour session, the Mexican Senate Wednesday morning approved historic legislation that will open up the country’s stagnant energy sector to private investment.

The bill was then sent to the lower house (Camara de Diputados), where less than 24 hours later legislators rubber stamped the reforms in a 353-134 vote.

The only major party to oppose the far-reaching energy industry overhaul was the left-of-center Party of the Democratic Revolution (PRD).

The bill removes the shackles placed on foreign involvement in Mexico’s oil, gas and electricity industries imposed after the nationalization of 1938. 

The reforms will allow private companies to partner with state-run oil giant Pemex in a wide range of ventures, including production, profit-sharing, risk-sharing and service contracts. The bill effectively brings an end to the exploration and production monopolies held by Pemex and the electric utility, the Comision Federal de Electricidad or CFE.

Oil production has fallen by one-quarter in the last decade and a lack of investment and technology has meant that Mexico has been unable to take advantage of its abundant deep-water crude reserves.

Industry experts say once the regulations governing the liberalization of the sector are worked out, dozens of multinational companies will be keen to invest in exploration for oil and gas in the Gulf of Mexico, as well as in the generation of electricity.

Mexican President Enrique Peña Nieto sees the energy reform package as the linchpin of his program to modernize the country’s uncompetitive and outdated infrastructure and stimulate growth. 

After the house vote Thursday, the president tweeted that the reforms would “increase the energy security of Mexico” and “boost productivity, economic growth and the generation of jobs.”

Peña Nieto has stressed that the nation will still own its oil reserves and that the bill does not amount to the privatization of the sector.  Pemex will remain in government hands, although some analysts suggest that over time the stature of the mighty oil monopoly will be reduced to that of a mere “concessionary.”

Opponents of the bill staged a protest outside Congress from the moment senators began debating the reform package last week. They contend that if consulted in a referendum, the Mexican people would not approve the reforms. PRD Senator Mario Delgado Carrillo said the lack of a national debate on the issue is a violation of Mexicans’ constitutional rights.

As legislators prepared to vote Wednesday, PRD representatives took over the chamber’s presidium and stacked chairs and tables at the entrance in a bid to block passage of the bill. One leftist legislator took off all his clothes on the podium in protest at what he called the “stripping of the nation’s biggest asset.”

The nature of Pemex will be completely transformed by the new legislation.  The bill reduces the influence of the powerful Pemex workers’ union by ousting their representation on the company’s administrative board and establishes a set of autonomous regulators with independent funding. Pemex’s profits will be overseen in  special fund by the central bank and used for education, technology development and other ends.

Because the bill requires changes to three articles of the Mexican Constitution, it will need the approval of two-thirds of Mexico’s state legislatures.  This will come in the new year.

As Mexico winds down for the holidays, supporters of Peña Nieto will hail the passage of the bill as a major victory for Mexico, the president and his party – an accomplishment that eluded his two PAN predecessors, Felipe Calderon and Vicente Fox. 

The difference between Calderon and Fox’s failed attempts to pass energy reform has been the unwavering backing of nearly all the legislators from both the centrist Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN).