Mexico's Congress passes energy reform bill; opens nation to foreign investment

[jimmy olsen]

Sounds like a good opportunity for American businesses.

http://www.latimes.com/world/la-fg-mexico-chamber-oil-20131213,0,309253.story#ixzz2nhocf1v2

Mexico's Congress passes energy reform bill
Mexican Chamber of Deputies follows Senate in agreeing to open the state-owned Pemex oil monopoly to foreign investment.


By Richard Fausset and Tracy Wilkinson

December 12, 2013, 4:54 p.m.

MEXICO CITY — After contentious marathon sessions, Mexico's Congress on Thursday gave final approval to a historic energy reform bill that ends the 75-year state monopoly of the country's oil and gas industry and invites foreign investment.

In a dramatic shift, Mexico's bloated state petroleum giant may soon have to compete with major U.S. and other multinational firms in the exploration of what are believed to be vast oil and gas reserves.

The government of President Enrique Peña Nieto said the change would boost lagging oil production and breathe life into a sluggish economy. But leftist lawmakers and many Mexicans vehemently oppose the move, which they see as surrendering precious natural resources to foreigners.

The lower chamber of Congress, the Chamber of Deputies, gave final approval to the bill, 353 for and 134 against, after 20 hours of debate and amid opponents' cries of "Traitors!" Barely 48 hours earlier, the Senate had done the same.

Because the bill requires changing the constitution, it must now be approved by at least 17 of Mexico's 31 state legislatures, which government officials said is likely.

Under the bill's complicated provisions, private oil companies, including the big U.S. conglomerates, would be allowed to enter into "production-sharing" agreements with Mexico. They would be able to drill for oil and take a cut of the crude produced under licensing agreements and contracts.

Proponents say another advantage is the outside expertise Mexico will gain to reach more technically demanding deepwater reserves and shale deposits, which Mexico's Petroleos Mexicanos (Pemex) has been unable to exploit. Two of its main shallow-water wells are running dry.

But opponents don't trust the ruling Institutional Revolutionary Party, or PRI, with its a long history of corruption, to oversee such drastic changes.

"This isn't the reform of the century, it's the robbery of a millennium," lawmaker Ricardo Monreal said.

Members of the Chamber of Deputies were forced to hold a voice vote on the bill in an alternative location because members of leftist parties had blocked access to the main congressional chamber.

Passions ran high and the voting occurred amid pushing, shoving and the hurling of insults.

Two female lawmakers came to blows; a male representative, Antonio Garcia Conejo, stood on the podium and stripped down to his skimpy black briefs to call attention to the "stripping" of Mexico's natural wealth and dignity.

Supporters of the bill were able to use a parliamentary maneuver to call a vote of the full lower chamber without first allowing committees to consider the proposal. That led to complaints that the measure was being rammed through, with many members not even having time to read its contents.

The left has promised to call a national plebiscite in an effort to overturn the measure, but some supporters have argued that the constitution prohibits such a move.

Peña Nieto and the PRI received crucial support from the conservative National Action Party, which pushed for the bill to include provisions even more attractive to investors than what the president originally sought.

Peña Nieto on Thursday tweeted his pleasure with passage of the law, which he termed "a fundamental transformation" that "will promote productivity, economic growth and the creation of jobs."

But it comes at a political price. Jesus Zambrano, president of the leftist Democratic Revolution Party, one of the main opponents, said his faction would no longer participate in the so-called Pact of Mexico, a much vaunted political accord that bound major parties to work together on legislation.

"The pact is dead," Zambrano said in a meeting with foreign correspondents. "That famous 'Mexican moment,'" he said, alluding to some of the positive rhetoric that has emerged in some quarters in connection with this government, "is kaput."

The law also removes the corrupt oil workers union from Pemex's board of directors, substantially limiting the union's enormous power, and opens the electricity sector to private investment.

Analysts said energy reform was urgently needed and would probably attract important investment, once all the details are available.

"This is potentially a real game-changer," said Deborah Byers, a Houston-based analyst for Ernst & Young.

"It's pretty comprehensive, an opening across the board, not just oil but also natural gas and the electricity sector," said Tim Samples, a business professor at the University of Georgia who has been following the legislation. "This has the potential to reshape Mexico as much as NAFTA," the 1994 free trade agreement with the U.S. and Canada.

At the rate that Mexico's oil production has been declining, it stands to become a net importer of oil in a decade. Currently, the country ships more than a million barrels of crude a day to the United States but has to import gasoline because it doesn't have the capacity to refine sufficient quantities to meet domestic demand.

[CountDeMoney]

Sounds like a good opportunity for American businesses.

Deep.  Insightful.  Deep.

[Neil]

Sounds like a trap.  Then again, I won't feel bad when some loot-and-plunder American companies get scalped when their assets get nationalized in five years.

[Admiral Yi]

  Says the guy from the strip mining capital of the world.

[Neil]

Indeed.  But as a first-world country, we can have a healthier relationship with the resource companies.  Not entirely healthy, but a lot better than the Latin Americans can manage.

[Valmy]

This is just an effort to provoke US military intervention to put down the Drug Lords.

Siege better get ready for patrolling Monterrey.

[Ed Anger]

This is just an effort to provoke US military intervention to put down the Drug Lords.

Siege better get ready for patrolling Monterrey.

Will a burro fit down a well?

[DontSayBanana]

Will a burro fit down a well?

I for one, fully expect a typo on wiki to end up in reports of wells mysteriously being filled with churros.

[Phillip V]

Excellent. North America will become richer and hopefully more integrated.

[Valmy]

Excellent. North America will become richer and hopefully more integrated.

The next step towards the North American Union!  THE CONSPIRACY THEORISTS WERE RIGHT

[The Minsky Moment]

Mexico is one of the most hydrocarbon rich regions on the planet, yet it pays some of the highest energy prices.  Operational failur, lack of technical expertise, and chronic under-investment at Pemex is to blame.
All the media stories about gruesome drug crimes and violence has obscured the fact that Mexico is quietly growing into a broadbased manufacturing powerhouse.  It has also benefitted recently from labor cost increases in China (and the stronger yuan), and of course its geographical position + NAFTA puts it in an ideal position to export to NAmerica.  But the high energy costs are a serious handicap.  It is so bad that even were Mexico to get zero from hydrocarbon extraction itself, it arguably would still be better off because of lower industry and consumer energy costs.  But clearly that is not a risk - they will get a lot more than zero, and the bigger risk is political pressure on Nieto leads them to drive too hard a bargain.