Feb. 22 (Bloomberg) -- Petroleos Mexicanos, Mexico's state- run oil company, would gain more control over its budget and pay reduced taxes under a 10-part energy bill the Senate Energy Committee plans to approve.

The committee will probably pass by a wide margin most of the 10 sections of the legislation this year, said Francisco Labastida, president of the panel and a former energy minister.

``We're at the point of doing -- and I hope it comes together -- the most important energy reform in several decades,'' Labastida said in an interview today on Radio Formula.

Mexico needs to reduce the tax burden on Pemex and allow it to operate more autonomously so it can fund production and make up for a decline that began last year at Cantarell, its largest oil field, Labastida said.

Production at Cantarell, which accounted for 55 percent of Pemex's output, fell 12 percent to 1.79 million barrels a day in 2006 from 2.03 million a day in 2005. The field's output is forecast to decline 15 percent this year, Pemex Chief Executive Officer Jesus Reyes Heroles said on Feb. 7.

``The risk that we have is that Cantarell's production drops by 1.5 million barrels per day,'' Labastida said in the radio interview. ``That's equal to all the domestic consumption.''

`Confiscatory' Taxes

The government had been taxing Pemex too much, Labastida said, pushing Pemex's liabilities, including unfunded pension commitments, above its assets. Pemex in 2006 had revenue of more than $100 billion and paid taxes of $79 billion, a burden Labastida labeled ``confiscatory.''

With the current tax rate, Labastida said, it would be irresponsible for Pemex to sell limited-equity securities, a proposal floated by the administration of former President Vicente Fox as an option for raising funds for Pemex. Under the proposal, Mexican citizens would be permitted to invest in the company and receive fixed payments; the company would have the right to repurchase the securities. Fox left office on Dec. 1.

High taxes make Pemex's finances too vulnerable for equity investors, Labastida said.

``This is why we need an integral energy reform,'' said Labastida, a senator from the Institutional Revolutionary Party, the second-largest party in the Senate.

Energy Reform

The energy reform would reduce the control Congress has over Pemex's spending, Labastida said. Congress sets Pemex's spending levels each year as part of the federal budget.

Senate Energy Committee members have studied oil industry regulation in Brazil, Norway, Canada and the U.K. as models for the new legislation, Labastida said. Senators will travel to Brazil in a week to visit state-owned oil company Petroleo Brasileiro SA, which is publicly on the New York Stock Exchange and in Brazil.

``I think Pemex should be a public company, with accountability, with transparency,'' Labastida said. ``That would help us make the company much more agile.''

Labastida didn't define what he meant by a public company.

The political climate in Congress has improved for Pemex as Labastida's party signals it will work with President Felipe Calderon's National Action Party, the largest party in Congress, to approve energy legislation, Reyes Heroles said on Feb. 7. Labastida's party and the National Action Party can form a majority in both the Senate and lower house of Congress.

The Institutional Revolutionary Party and the Party of the Democratic Revolution, the third largest in the Senate and second biggest in the lower house of Congress, blocked Fox's six-year effort to open the energy industry to more private investment.

``It's very encouraging that a PRI senator of the stature of Francisco Labastida is openly pushing the need of reforms at Petroleos Mexicanos,'' Reyes Heroles said.

To contact the reporter on this story: Thomas Black in Monterrey at tblack@bloomberg.net

Last Updated: February 22, 2007 16:00 EST