Mexican Senate approves oil industry overhaul

AP News
Posted: Dec 11, 2013 7:18 PM
Mexican Senate approves oil industry overhaul

MEXICO CITY (AP) — Senators on Wednesday approved the most dramatic overhaul of Mexico's oil industry in decades, moving closer to opening the beleaguered, state-run sector to private companies and investment. The vote led dozens of leftist lawmakers who oppose the changes to take over the lower house trying to block discussion of the legislation.

With two of the country's three main parties backing the bill, the Senate voted 95-28 in favor of allowing the government to grant contracts and licenses for exploration and extraction of oil and gas to multinational firms, something currently prohibited by Mexico's constitution.

Dozens of leftist lawmakers then seized control of the House of Deputies, using chairs and tables to block access to the chamber. "The homeland is not for sale! The homeland is to be defended!" they shouted while holding protest signs and Mexican flags.

The attempt failed as other lawmakers met in a room nearby and voted for the body to begin debating the bill.

With the Senate passage, the bill also must be approved by the lower house and by the legislatures of 17 of Mexico's 31 states and Federal District.

It's the crowning piece of President Enrique Pena Nieto's first year of reforms, which have also targeted education, the tax system and telecommunications. But energy reform is considered most crucial to the overall economy and the remaining five years of Pena Nieto's presidency.

Under the legislation, contracts could be made directly with the state rather than with the state-run oil company, Petroleos Mexicanos, which would lose its monopoly on Mexican oil. The bill would allow contracts for profit- and production-sharing as well as licenses under which companies would pay royalties and taxes to the Mexican government for the right to explore and drill.

Private companies would have to specify in contracts that all oil and gas found belongs to Mexico. The constitution would continue to prohibit oil concessions, considered the most liberal kind of access for private oil companies.

Opponents said the proposal would shift to a system that has been proven a "total failure."

The opponents argue that Mexico's people should decide on such a big change.

"We want a referendum on this," said Congressman Alejandro Sanchez, a member of the leftist Democratic Revolution Party, or PRD.

Analysts contend Mexico needs to let in private investment to save its oil sector. While oil output has been rising in the U.S. and Canada, Mexico's production has fallen 25 percent since 2004 despite increased investment. Pemex also has been unable to exploit the country's deep-water deposits and shale oil and gas reserves.

Operations allowed by the Senate proposal have been prohibited since 1938, when President Lazaro Cardenas nationalized the oil industry, a step written into the constitution to protect the country from possible profiteering by foreign companies.

The energy bill was hashed out by Pena Nieto's Institutional Revolutionary Party, or PRI, and the conservative National Action Party, which wants the energy industry to be as open as possible to investment and partnership possibilities.

The PRI has been more moderate, given the leftist opposition that has drawn thousands in street protests.

But the mobilization by leftist so far hasn't been as great as in 2008, when former presidential candidate Andres Manuel Lopez Obrador all but killed a congressional attempt to open the oil industry to greater private investment. Lopez Obrador has been sidelined by a heart attack, but protesters have been out every day the past week to oppose the oil reform.