Mexican president signs law opening oil industry

Agence France-Presse

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The measure breaks a monopoly that the state oil company, Petroleos Mexicanos (Pemex), has held since 1938.

OIL INDUSTRY OPEN. Mexican President Enrique Pena Nieto holds up the signed decree to promulgate the energy reform, during a ceremony at the National Palace in Mexico City, on December 20, 2013. AFP / Presidencia

MEXICO CITY, Mexico – President Enrique Peña Nieto signed a controversial law Friday, December 20, that opens Mexico’s oil industry to foreign investment for the first time in 75 years.

The bill, which modifies three articles of Mexico’s constitution, is aimed at attracting foreign investment with profit and production sharing contracts.

The measure breaks a monopoly that the state oil company, Petroleos Mexicanos (Pemex), has held since 1938.

This is “one of the most transcendent bills in the past half-century,” Peña Nieto said, arguing that it has the potential to lead to fast economic growth and create jobs for Mexican engineers and technicians.

It will also lead to a drop in the price of natural gas and electricity, and an increase in food production because a strong petrochemical industry will produce more affordable fertilizer, Peña Nieto said.

The president signed the measure into law after it was approved in Congress and after it was ratified by a majority of Mexican states.

Oil output has dropped from 3.4 million barrels per day in 2004 to 2.5 million today because of what the bill’s supporters say is underinvestment. Mexico currently imports half the gasoline it consumes.

The government hopes to use foreign and local investment to reverse that trend, increase production, expand refining capacity and drill for shale gas and deep-water oil deposits.

The reforms met few obstacles in the Congress and state legislature because it was supported by two of the country’s three leading parties, the ruling Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN).

But the third party, the leftist Party of the Democratic Revolution (PRD), slammed the legislation a national betrayal.

Many in Mexico look back with pride at the expulsions of foreign companies in 1938 by president Lazaro Cardenas, who died 43 years ago to the day Friday.

One of the PRD’s founders is the ex-president’s son, Cuauhtemoc Cardenas.

The party has called for a massive protest against the measure for January 31.

The leftist opposition also hopes to organize a referendum in 2015 to repeal the measure.

Around 1,000 leftist demonstrators gathered in a downtown plaza late Friday to protest the move, and a small group clashed with riot police.

Rather than letting foreign companies drill for its most precious national resource, Mexico should instead crack down on the rampant and costly corruption and waste at Pemex, leftist critics say.

But even though opening the oil and gas industry to private investment is a highly sensitive issue, energy reform supporters say it is necessary to save the state-run industry.

They point to aging refineries, a lack of deep-water drilling technology, and dwindling oil production.

Analysts warn it will likely take years before international oil giants such as Exxon Mobil or Shell make a foray into Mexico.

The “production-sharing” agreement in the energy reform will allow private firms to take a cut of the crude they find.

The law also aims at modernizing the inefficient state electricity sector, and make Pemex more competitive.

Supporters argue that without the technical know-how from foreign energy firms, Mexico will probably be unable to exploit hard-to-reach deep-water oil reserves and shale rock gas deposits.

As oil production declines and shallow-water wells dry up, some experts claimed that, without the reforms, Mexico could become a net oil importer by 2020. –

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