Mexico set to implement historic oil reform

Mexico set to implement historic oil reform
A rig contracted by Apache Corp drills a horizontal well in a search for oil and natural gas in the Wolfcamp shale located in the Permian Basin in West Texas.

Mexico moved a step closer Wednesday to implementing a historic energy reform that will open the state-controlled sector to foreign investment for the first time since 1938.

The Senate voted 90-27 to give preliminary approval to the enabling laws that will break the monopoly held by state-run energy giant Pemex since foreign companies were kicked out of Mexico 75 years ago.

The senators were expected to vote later Wednesday on the last details of legislation, which is the centerpiece of President Enrique Pena Nieto's reform drive to breathe new life into Latin America's second biggest economy.

The lower house already approved the energy bills, which will head to Pena Nieto's desk for his signature if the Senate votes for all of it without changes.

Change for the better?

"Mexico can't stay as it is. Mexico must change to combat poverty and inequality, which is why we want to increase oil profits," said Senator David Penchyna of the ruling Institutional Revolutionary Party (PRI).

The government argues that the legislation will boost growth, create jobs and reverse declining oil production.

But the leftist opposition says the reform amounts to a damaging privatization of Pemex, the country's main source of tax revenue and a symbol of national sovereignty.

"Our dear Mexico is becoming more and more like a restaurant where foreign customers can enjoy our energy resources without limits and almost for free," said Senator Fernando Mayans Canabal of the leftist Democratic Revolution Party (PRD).

PRD lawmakers brought a life-size picture of late former president Lazaro Cardenas to the Senate floor and accused the PRI of betraying the legacy of the man who nationalised the oil industry in 1938.

Oil firms eye reform

The constitutional reform was approved in December with the backing of Pena Nieto's centrist PRI and the conservative National Action Party (PAN).

To be enacted, the Congress needs to pass "secondary laws" that outline how contracts will be offered, among other things.

Major oil companies have kept a close eye on the legislation, with US giant ExxonMobil and British rival BP leading an "energy task force" within the American Chamber of Commerce of Mexico.

The reform will allow foreign companies to sign profit-sharing contracts with Mexico as soon as next year and drill for oil and natural gas.

The government says the reform will allow Mexico to obtain the technology to drill for shale gas over land and deep-water oil in the Gulf of Mexico.

The legislation will reduce Pemex's tax burden and compensate landowners by offering them three per cent of profits earned from oil or gas extracted from their properties.

One of the most controversial measures calls for the government to absorb part of the Pemex worker union's unfunded pension liabilities, which total more than US$125 billion (S$156 billion), or 10 per cent of the country's GDP. The company and workers would then have to renegotiate their labour contract.

The PRD said the notoriously corrupt union's accounts should be audited if Mexicans are took take in its debt.

"The Mexican people have already paid too much," said PRD Senator Dolores Padierna Luna. "Don't burden them with more debt that is of your own making."

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