Mexico's Energy Debate Approaches Fever Pitch

Mexican President Enrique Pena Nieto has presided over an incredible year so far in Mexico, pushing through reforms of the telecom and educational sector. But this week, just days after Pena Nieto's successful thyroid surgery, the president and his PRI party are set to introduce their biggest proposal yet -- proposing sweeping changes to the nation's oil laws that have for decades protected the bloated state oil monopoly Pemex and prevented foreign investment. Showing that it's ready to have a say in the oil debates to come, the PAN party of former president Felipe Calderon has put forth its own proposal.

Glued to the developments is Duncan Wood, director of the Mexico Institute at the Wilson Center. Wood will soon be writing regular dispatches about the ongoing energy reforms and the impact that all the changes afoot in Mexico will have on North America.

Wood contributes this report:

The debate in Mexico over the forthcoming energy reform is reaching a fever pitch. On the July 31, the opposition and former governing PAN party presented its proposal for energy reform, in which it advocated for a constitutional change that would allow for exploration and production (E&P) concessions to be granted to private oil firms and allows for a small Initial Public Offering (IPO) of shares in PEMEX, the state-run oil enterprise. The proposal included:

•         Opening the oil and gas upstream, downstream and midstream sectors to private investment;

•         The National Hydrocarbon Commission (CNH) would be tasked with granting E&P oil and gas concessions;

•         The creation of a new Mexican Oil Fund to administer oil profits;

•         Granting PEMEX and the CFE autonomy from governmental control.

•         Opening the power sector to further private investment;

The PAN’s proposal sent shock waves through the Mexican political elite, prompting the left-wing PRD party to claim that the proposal was clearly intended to privatize both PEMEX and Mexican oil production. Earlier this year, the PRD announced its proposal for energy reform that focused on reforming PEMEX internally, allowing it to keep more of its revenue, and allowing for limited private participation in the refining, transportation and petrochemicals areas.

With the PAN announcement, it seems that the government has been spurred into action. The governing PRI party almost immediately sent signals that it is almost ready to present its legislative initiative in the coming days. The Pena Nieto administration is widely expected to announce a proposal that changes the constitution to achieve the following goals:

1. Reform PEMEX from a “decentralized organ of the government” to a “public productive company” transforming the entity into a real National Oil Company;
2. Reduce the tax burden on PEMEX, allowing it to keep more of its income for investment in E&P and the development of new technologies;
3. Permit joint ventures between PEMEX and private and foreign companies, in an effort to increase oil production, particularly from the Gulf of Mexico;
4. Permit private and foreign companies to book reserves
5. Break the monopoly of PEMEX over the hydrocarbons value chain, permitting them to participate in both upstream and downstream activities;
6.  Create a new regulatory body (or strengthen an existing body) to create the conditions for a level playing field in the hydrocarbons sector.

These changes, if they come to pass, will represent a major shift in Mexican energy policy. However, the government will be able to claim that they represent a middle path between an “overly radical” proposal of the PAN, and the “anachronistic vision” of the PRD. The timing of the vote for energy reform now becomes the main issue of debate: if the government is to present its initiative to the Congress during August, it will need to convene a second extraordinary session in both chambers. If, however, the government chooses to wait until the Congress comes back into session in September, Andres Manuel Lopez Obrador (AMLO, the former presidential candidate from the PRD and current leader of the MORENA political movement) has pledged to occupy the center of Mexico City on the 8^th of September, in protest at the government’s reform agenda. This could prove embarrassing for the government, but only if AMLO manages to bring hundreds of thousands of citizens to the protests, an expensive and highly complex operation to pull off, particularly as there appears to be a widening breach between AMLO and his former party.

Whatever the timing, it appears that the nation is now bracing itself for what will be an intense battle between the government and its leftist critics. With the odds seemingly stacked in its favor, however, the government will be quietly confident of victory.