By Dave Graham
MEXICO CITY (Reuters) - Mexico's main opposition party has signaled it is ready to compromise over demands for electoral reform that risk impeding a government bill to liberalize the oil industry.
Last month, the conservative National Action Party (PAN) proposed an electoral reform that seeks to curb the power of the ruling Institutional Revolutionary Party, or PRI, which has dominated Mexican politics for most of the past century.
Until a deal is reached to revamp the electoral system, the PAN said it would not back the government's plan to open up the oil industry to more private investment, which President Enrique Pena Nieto says is vital to reverse declining crude output.
However, Jose Maria Martinez, deputy leader of the PAN in the Senate, told Reuters in an interview late on Tuesday his party was not drawing lines in the sand over the reform.
Among the PAN proposals are to introduce a second round run-off between first and second-place candidates in presidential elections. That would allow the opposition to join forces against the PRI, many of whose lawmakers are wary of the idea.
"There's nothing off the table for the PAN in terms of the discussion on electoral reform," he said when asked if the second round run-off had to be part of the final bill. "We're completely prepared to debate point by point."
It is far from clear the PAN would have enough support to force through a second round run-off.
Aside from resistance from the PRI, the Party of Democratic Revolution (PRD), the main leftist opposition group, did not see eye-to-eye with the PAN on the run-off either, Martinez said.
Pena Nieto is hoping to pass his energy reform this year, but the success of his proposal is likely to depend on support from the PAN because it contains constitutional changes requiring a two-thirds majority in Congress to become law.
At the same time, the president is scrambling to push through a fiscal reform tied to the 2014 budget, a package which only has until mid-November to be approved.
Failure to pass the electoral reform risks creating a logjam in Congress that could seriously hamper the president's efforts to ramp up growth in the Mexican economy, which has averaged barely 2 percent since the start of the millennium.
In 2000, the PAN broke the PRI's 71-year hold on power with the election of Vicente Fox as president.
Nonetheless, in opposition, the PRI remained a potent force, helping to thwart many efforts to change the country by Fox and his PAN successor Felipe Calderon, before the party recaptured the presidency with Pena Nieto last year.
Opposition parties have sought to change the electoral system to improve their chance against the PRI, which has always governed at least half of the states in the country.
The PRI's failure to secure a majority in Congress last year presented the opposition with an opportunity as Pena Nieto sought help from his rivals to push through economic reforms.
Sealing a joint pact with opposition leaders to work together on revamping Latin America's second biggest economy, Pena Nieto also agreed to help pass an electoral reform.
Martinez said early talks between the parties suggested Congress should be able to pass key elements of the PAN plan, such as allowing direct re-election of federal lawmakers, who at present are barred by law from serving consecutive terms.
"At this moment, we're seeing the possibility of reaching a concrete deal on the re-election of lower house deputies and senators for one term," he said, noting that there might still be scope to agree on a higher number of re-election periods.
Critics of the PRI say that prohibiting re-election has historically enabled the party, not voters, to have the biggest say on who sits in Congress.
Still, Martinez said the PRI was also "well disposed" towards the PAN's proposal of raising the minimum threshold required for a party to enter Congress to five percent of the national vote from two percent now.
The current threshold has been abused by some smaller parties, Martinez said, arguing that they took advantage of generous political funding to operate as "businesses".
Based on the results of the 2012 federal elections, the proposed change would cut the parties in Congress to four from seven, with Mexico's Greens, coalition allies of the PRI, the fourth largest power with around six percent of the vote.
(Reporting by Dave Graham; editing by Jackie Frank)