Aug. 13 (Bloomberg) -- Mexican legislators agreed to reduce taxes on Petroleos Mexicanos, the state-owned oil company, by 60 billion pesos ($5.45 billion) a year to free up funds for the company to spend on increasing crude production.

The measure will be included in President Felipe Calderon's tax-reform bill, Senator Francisco Labastida, president of the Senate energy commission and a member of the opposition Institutional Revolutionary Party, said today in a transcript of an interview with Mexico City journalists.

Mexico City-based Pemex faces declining output because it lacks funds to discover new fields fast enough while also investing to produce gasoline, petrochemicals and maintain an aging pipeline system. Labastida said a Pemex tax cut is crucial for rescuing the company from the brink of financial collapse that has resulted in declining crude production.

``With this change, Pemex will have the economic capacity to move forward,'' Labastida said.

Pemex's daily oil output fell to 3.26 million barrels in 2006 after peaking at 3.38 million barrels in 2004 amid output declines at its Cantarell offshore field. Last year, Cantarell's output fell 12 percent to 1.79 million barrels a day.

Pemex, the third-largest oil supplier to the U.S., has set a goal of maintaining crude-oil production at 3.1 million barrels per day and add proven reserves equivalent to 100 percent of production over the next six years.

Tax Overhaul

Mexico's congress is moving toward an agreement on Calderon's tax bills, which call for creating a flat-tax on revenue to close loopholes in tax code and boost collection by as much as 3 percent of gross domestic product by 2012.

``This is a good sign,'' Labastida said. ``Everybody wants things to turn out well.''

One of the sticking points for agreement on Pemex's taxes was the insistence by Labastida's party to tie a Pemex tax cut to Calderon's bill, a proposal that initially was rejected by Finance Minister Agustin Carstens.

Fernando Elizondo, a member of Calderon's National Action Party and a member of the energy commission, said in a Aug. 11 news conference that his party would support including Pemex in the tax reform bill.

``The issue of Pemex taxes is something that will have to be done relatively quickly because it goes, more or less, with the tax reform bill,'' Elizondo said, according to a transcript of the news conference in the beach resort of Puerto Vallarta.

Special Session

Carstens on Aug. 10 also said he's in talks with lawmakers to include tax exemptions for workers' salaries in the bill, according to the Mexico City daily El Universal, which would remove another obstacle for the bill's approval.

Congress begins its next regular session Sept. 1. Lawmakers from both the National Action Party and the Institutional Revolutionary Party have proposed holding a special session this month to vote on the tax reform bill. Calderon has called on congress to approve his bill, which he introduced in June, before he must deliver to Congress the 2008 budget on Sept. 8.

The president's party, which holds the most seats in the Senate and the House, can form a majority with the support of the Institutional Revolutionary Party, the Senate's second largest party and the third biggest in the lower house.

Threats by Party of the Democratic Revolution legislators to disrupt Calderon's State of the Union speech on Sept. 1 may derail an agreement for a special session.

Party leaders are now focused on reaching an agreement to avoid the type of fisticuffs and chaos seen at Calderon's swearing-in ceremony in Congress on Dec. 1.

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

Last Updated: August 13, 2007 17:50 EDT