Mexico Senate Committees Set to Discuss Energy Industry Revamp

Mexican Senate committees are set today to discuss a bill to end the nation’s seven-decade oil monopoly and open the energy industry to more foreign investment in a bid to reverse declining crude production.

President Enrique Pena Nieto’s Institutional Revolutionary Party, or PRI, and the opposition National Action Party, or PAN, are negotiating to deepen a profit-sharing model unveiled in August by also allowing production sharing or a license model used in Brazil, according to two people with knowledge of the talks. The discussions between the parties will include the possibility of establishing a sovereign fund, PRI Senate leader Emilio Gamboa said in an interview yesterday.

Senators are close to finalizing the proposal that will be presented to lawmakers from three committees today, PRI Senator and Energy Committee head David Penchyna told reporters yesterday. The overhaul will be approved in the Senate as soon as Dec. 8, with the aim of having it passed by the lower house by the Dec. 15 end of the legislative session, he said.

“In this week we will have an energy reform,” Gamboa said in the interview. “This is clearly a reform that Mexico needs in order to emerge from our underdevelopment. With this reform, Mexico will generate wealth, employment and well-being, which is what the Mexican people need.”

Pena Nieto’s government says an energy overhaul would lift annual gross domestic product growth 1 percentage point by 2018, helping spark an economy that it forecasts will expand 1.3 percent this year, the least since the 2009 recession.

Output, Markets

Senators will receive the official draft of the bill in a meeting scheduled to start at 5 p.m. in Mexico City today and set rules for debate, which may not begin until tomorrow, Penchyna said yesterday.

Petroleos Mexicanos, the state-owned producer known as Pemex, is headed for a ninth straight year of output declines after production at Cantarell, the world’s third-largest deposit when discovered in 1976, slumped more than 80 percent in the past decade.

The government is seeking to reduce its reliance on Pemex, whose revenue funds about a third of Mexico’s federal budget, to allow the company to invest more in its own growth.

Pemex was created in 1938 by President Lazaro Cardenas after he seized assets from companies that later became part of Exxon Mobil Corp. (XOM), the world’s largest oil company, and Royal Dutch Shell Plc (RDSA), Europe’s largest. More than seven decades later, both companies have expressed interest in investing in Mexico as rules change.

Mexico’s peso has rallied the past two days, climbing the most among the world’s major currencies yesterday, on bets that the energy overhaul will contribute to faster growth. The peso climbed 0.4 percent to 13.0434 per U.S. dollar, the strongest level on a closing basis since Nov. 22.

Charter Change

PRI and PAN lawmakers reached a preliminary accord in October that would allow Mexico to offer companies service contracts and profit and production sharing and licenses. The agreement remains in place, two people with knowledge of the discussions said Dec. 3, asking not to be named because the plan hasn’t been made public.

The PRI and the PAN also want to revamp Pemex’s corporate structure to give the company more autonomy to make its own strategy and budget decisions.

Allowing other companies to explore and drill for gas and oil in Mexico requires a constitutional amendment that could only pass with a two-thirds majority in both the lower house and Senate. The PAN, PRI and Green Party have enough votes to approve a charter change.

Opposition Protests

The Democratic Revolution Party, or PRD, Mexico’s third-biggest party, opposes changing the constitution. PRD supporters and followers of Andres Manuel Lopez Obrador, who lost last year’s presidential election to Pena Nieto, protested the PAN and PRI proposals yesterday, partially blocking traffic at the intersection of Insurgentes and Paseo de la Reforma, one of Mexico City’s biggest crossings.

Energy overhaul opponents linked arms yesterday to form a human chain, preventing Senate employees from getting to work. The protesters were separated from the Senate by police with riot shields, who stood shoulder to shoulder to form a perimeter for several blocks around the building.

“I’m confident that we’ll have the guarantees, the security, to meet Thursday, Friday, Saturday and Sunday in order for the energy reform to pass,” Gamboa said.

To contact the reporters on this story: Eric Martin in Mexico City at emartin21@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Carlos Manuel Rodriguez at carlosmr@bloomberg.net

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