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Mexico poised to end state energy monopoly

BY ADAM WILLIAMS and CARLOS MANUEL RODRIGUEZ

MEXICO CITY (Bloomberg) -- Mexico’s seven-decade state energy monopoly is poised to end after senators from the nation’s two biggest political parties agreed to allow output sharing contracts and licenses for outside producers.

The lawmakers presented joint legislation Dec. 8 to allow private companies from Exxon Mobil Corp. to Chevron Corp. 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 output. The bill would allow companies to log crude reserves for accounting purposes, which may make it easier to secure project financing.

The proposal, which senators began debating yesterday in joint committees, comes after four months of political wrangling following the release of separate plans from President Enrique Pena Nieto’s ruling Institutional Revolutionary Party, or PRI, and the opposition National Action Party, known as PAN. The government estimates an energy overhaul would lift economic growth 1 percentage point by 2018 and reverse production losses.

“I see a sense of willingness to move this bill forward,” Ninfa Salinas, a Green Party senator in the energy committee, said in a telephone interview yesterday. “There’s an understanding of using this as a tool to boost growth.”

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 two parties, which with political allies have the two-thirds majority needed to pass the bill in both houses, are seeking to amend the nation’s charter to allow private and foreign energy companies to pump oil in Mexico’s $95 billion-a-year industry for the first time in 75 years.

Similar to the concession model proposed by PAN, licenses would grant broader operational control than the government’s 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.

The 295-page initiative calls for changes in articles 25, 27 and 28 of the constitution. The draft also sets 21 mandates to be fulfilled with secondary regulations to be drafted next year.

The bill also proposes the creation of a sovereign fund, originally proposed by PAN, that would be used to manage oil profits for long-term investment and savings.

The sovereign fund will be a public trust that will be operated by Mexico’s Central Bank, which will act as trustee, and receive all the earnings derived from contracts.

“The PRI has accepted almost all of the PAN proposals,” PAN Senator Salvador Vega said. “Many of the proposals contained in our original initiative have been included, though there are some things that could be added to advance it.”

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 PAN’s leader in the Senate, says that licenses aren’t the same as concessions, Houston-based energy consultant George Baker said the models are very similar.

“It’s a 180-degree turn for Mexico,” Baker said in a telephone interview. “I never thought they would do that.”

The Democratic Revolution Party, the third-biggest party in both chambers, opposes the constitutional amendments.

The bill also will seek to promote alternative energy sources in Mexico through investments, said Salinas, whose party forms part of Pena Nieto’s coalition in Congress.

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.

“We don’t have the right to continue squandering oil income,” PRI Senator David Penchyna, who heads the senate energy committee, said in a Dec. 8 statement.

12/09/2013

 

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