Mexico’s Congress has passed a watered-down energy industry reform that enables private contractors to participate in the state-owned oil business but won’t likely draw enough investment to reverse declining production in the third-largest oil supplier to the United States.
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Wednesday, October 29, 2008
Mexico approves opening oil industry to private sector
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In a turbulent session, the Mexican Congress Tuesday approved seven bills reforming the state oil company Petroleos Mexicanos (Pemex), which holds a monopoly on the industry, to allow participation by private international firms.
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Mexico's lower house voted 326 to 133 to approve the version passed by the Senate last week. According to the new legislation, Pemex is now set to be more autonomous from the state with private international companies allowed to take part in the modernization process.
However private sources believe this won’t be enough to attract sufficient investment to reverse declining production. Mexican oil production has dropped 10% this year to an average of 2.8 million barrels a day
Mexican President Felipe Calderon put forward the initiative months ago, as a reaction to the country's falling oil production and decaying infrastructure.
The reform allows deep-water exploration only on a straight contractual basis, instead of paying private companies based on the amount of oil they find. Private investment in the building and operating of oil refineries also was ruled out under pressure from leftist lawmakers.
Former leftist presidential candidate Andres Manuel Lopez Obrador led the opposition effort against such a "privatization" of Pemex. Some 30 supporters of Lopez-Obrador, the former Mexico City mayor, occupied the speaker's podium in Congress in an effort to prevent a vote but were unable to prevent the vote.
However, several members of his Party of the Democratic Revolution (PRD) voted in favor of the bill.
SOURCE:
MercoPress, http://www.mercopress.com
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Saturday, October 25, 2008
Mexico moves to reform oil industry with private sector
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Mexico’s Senate approved this week changes to the country’s oil sector designed to halt rapidly falling production and ensure Mexico’s oil self-sufficiency in the medium term. The bill must now be considered by the Lower House
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The changes, which follow seven months of fierce debate, will give greater financial autonomy and more decision-making flexibility to Pemex, the country’s state oil monopoly. The company’s 11-person board of directors will also gain four independent members, potentially improving transparency and corporate governance.
However, the reform places strict limits on the role of private companies, and rules out the possibility of production-sharing contracts, which are favored by the world’s leading oil companies but prohibited by Mexico’s constitution.
The reform also bans the private sector from building and owning refineries or participating in areas of oil transportation – in contrast to the government’s original proposal.
Even so, Agustín Carstens, Mexico’s finance minister, admitted that the reform ”should, in principle, be enough” to steady the country’s rapidly falling oil production.
This week, Pemex reported that total production of crude in September fell almost 10% compared with 12 months before, averaging 2.8 million bpd. The dramatic fall reflects both the sharp decline of the Cantarell oil complex, which for years accounted for about two-thirds of Mexico’s total production, as well as the lack of new discoveries. Besides, oil revenue accounts for about 40% of total federal-government income.
Mr Carstens said that the reform would make Pemex into a more efficient company:”by making Pemex more flexible, we will get a much more effective and a much stronger company . . . it is an important step”.
George Baker, who runs energia.com, a Houston-based oil consultancy said that “the law itself will not ensure increased production but at least it sets in place the possibility of better decision-making in the future
Mexico sends more than 1 million barrels a day to the U.S., making it the third-largest source of U.S. oil behind Canada and Saudi Arabia, so America also stands to lose if Pemex doesn't develop its reserves.
Mexico nationalized the oil industry in 1938 out of anger over exploitation by US and other foreign companies, and it has long treated Pemex as part of its national identity. Foreign and private companies are barred from investing directly in Pemex.
SOURCE:
MercoPress, http://www.mercopress.com
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Oct. 28
Mexico's Lower House Approves Changes to Oil Industry
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Mexico City -- Mexico's lower house of congress approved measures to give state-owned Petroleos Mexicanos more leeway to hire private and foreign companies.
Lawmakers led proceedings at a makeshift stand on the floor of congress after opposition legislators allied with former presidential candidate Andres Manuel Lopez Obrador seized the usual podium, waving Mexican flags and setting off air horns and sirens in a bid to derail the vote.
The passage is a political victory for President Felipe Calderon, who overcame two attempts by opponents this year to block congress from voting on the measures, said Jeremy Martin at the Institute of the Americas in La Jolla, California. Nonetheless, the initiatives won't stop a drop in reserves that will eventually force Mexico to begin importing crude, he said.
``It didn't work out quite as well as Calderon hoped,'' said Martin, who directs the energy program at the institute. Still, ``any kind of energy reform in Mexico is important. It's an incremental step.''
The measures, already passed by the Senate and only awaiting Calderon's signature to become law, will allow the state-owned company, known as Pemex, to sign service contracts that provide performance-based incentives to outside companies. They show that Calderon is able to pass controversial legislation that his predecessors were unable to muster, Martin said.
Lawmakers led by resistance from the opposition Institutional Revolutionary Party, or PRI, amended Calderon's plan by removing a measure to let other companies operate refineries.
Protests
The plan also met resistance from Lopez Obrador's Party of the Democratic Revolution. He and his supporters first shut down congress in protest for two weeks in April, chaining the doors to congress and camping in sleeping bags on the lower house floor.
Calderon has said his proposals would free up funds for exploration to help reverse declining production at the company, without jeopardizing the state monopoly on oil. Opponents say the initiative would transfer Mexico's oil wealth to foreigners and the business elite, and that cutting Pemex taxes is a better option for giving the company money to use for exploration.
``The reform guarantees that only Mexicans will own our oil,'' Calderon said in speech televised nationally at 9 p.m. local time. ``The stimulus the reform gives our oil industry, will allow us to reactivate our economy.''
Since Pemex was created with the expropriated assets of U.K. and U.S. oil companies in 1938, the government has enforced the clause of the federal constitution that gives the state the exclusive right to process and distribute oil and natural gas.
Democracy
The protests by the opposition lawmakers signal the arrival of democracy less than a decade after 70 years of one-party rule ended, said Miguel Tinker-Salas, professor of Latin American studies at Pomona College in Claremont, California.
A body that once served as a rubber stamp for Mexican presidents proved Calderon's biggest obstacle to revamping the oil industry, softening what is perhaps the most important initiative of Calderon's term, he said.
``Congress has been exerting more power, pressuring the executive, and that's the reflection of greater democracy,'' Tinker-Salas said. ``That would have been unheard of when the president was all-powerful.''
The PRI forced Calderon to drop his original plan to change the constitution and let Pemex form partnerships with foreign and private oil companies, possibly allowing them to a own stake in newly discovered reserves, Pemex Chief Executive Officer Jesus Reyes Heroles said July 24.
Pemex's monthly crude output fell to 2.72 million barrels a day in September, a decline of 14 percent from a year ago and the lowest since November 1995, on decreased demand from U.S. refiners and as its largest field declined.
Crude output has declined for four years, and Pemex only has reserves to last about 9 years, according to government estimates.
Mexico has 12.4 billion barrels of untapped oil reserves, or 10 percent of the world's crude, according to the U.S. Energy Department. The country's reserves are declining because most formations in the Mexican section of the Gulf of Mexico remain unexplored, the department said last year.
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SOURCE:
Jens Erik Gould : jgould9@bloomberg.net;
Adriana Lopez Caraveo : adrianalopez@bloomberg.net
http://www.bloomberg.com
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