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Mexico opens oil sector to investment

President refuses to give foreign firms ownership, sale rights

The Washington Post

President Enrique Pena Nieto proposed historic changes to Mexico’s state-run energy sector Monday, cracking open the door for global oil giants such as Exxon Mobil and Shell to invest in Mexico’s lethargic 75-year-old state oil monopoly, Pemex, a symbol of deep nationalist pride.

In a highly anticipated address, Pena Nieto stopped short of offering foreign oil firms what they really want: a right to own and sell the oil they drill in Mexico.

Instead, he proposed constitutional changes that will allow for risk and profit-sharing partnerships between foreign firms and Pemex, the eighth-largest oil business in the world, and a move aimed at luring the money and technology necessary to exploit Mexico’s huge but hard-to-reach deep-water and shale oil fields.

At the same time, Pena Nieto emphasized that Pemex will remain the sole owner and manager of Mexico’s oil. “Pemex will not be sold, nor privatized,” Pena Nieto said in an address that did not offer many details of precisely how investors will partner with the company, which currently funds about 30 percent of Mexico’s national budget even as production has started to lag. “The spirit of this reform recovers the best of our past to conquer the future.”

It remains to be seen whether Pena Nieto’s offer of risk and profit-sharing will be enough to lure companies such as Shell, BP, Exxon Mobil and Brazil’s Petrobras, which have the kind of expertise needed to modernize the Mexican oil industry.

It also is unclear how the reforms will be greeted by a Mexican public that views the nation’s oil as a quasi-sacred national treasure. They celebrate March 18, 1938 — the date Mexican President Lazaro Cardenas kicked out foreign companies — as national “Oil Expropriation Day,” recalling Mexicans who offered their own jewelry, goats and chickens to pay off debt owed to foreign firms.

Recent polls show that some 65 percent of Mexicans oppose constitutional changes like what Pena Nieto proposed.

At the same time, most Mexicans also see Pemex as drenched in corruption. Any reform plan is doomed, experts say, unless it addresses an entrenched culture in which politically connected Mexican firms get lucrative contracts and jobs are obtained by literally paying for them.

Pena Nieto alluded to “transparency” in his speech, but otherwise left the matter untouched, and went out of his way to assure Pemex workers that their labor rights will be protected.

The question remains how foreign companies will perceive the president’s reforms. “For global oil companies, the bottom line here can be expressed as: Do we have a serious business opportunity or not?” said George Baker, a Houston-based oil industry analyst.