March 1 (Bloomberg) -- Mexican President Enrique Pena Nieto is poised this weekend to gain support from his party to end a 75-year-old state monopoly in the oil industry, marking a breakthrough for his growth plan.
The ruling Institutional Revolutionary Party will decide at its national assembly whether to drop its opposition to constitutional changes that would ease state-owned Petroleos Mexicanos’s grip on the oil industry. Pena Nieto, who hasn’t yet presented a bill proposing the changes, would still have to win the votes in Congress, where his party has a plurality in both houses.
Oil production in the world’s ninth-largest producer of crude has fallen for eight years as Pemex finances a third of the government’s public budget. Opening the industry to foreign investors would boost output while lifting economic growth by as much as 2 percentage points each year, Energy Minister Pedro Joaquin Coldwell said Feb. 14. For Pena Nieto, whose coalition controls 241 of 500 seats in the lower house, gaining his party’s support is the first step to making the changes.
“The PRI will align itself with its natural leader,” said Enrique Krauze, a historian and author of Mexico: A Biography of Power. “They’ve shown that they’re serious, that they really mean business” about overhauling the economy.
Changing the PRI’s bylaws would give Pena Nieto, 46, the option, not the obligation, of presenting bills to expand the items covered by the nation’s value-added tax to include food and medicine and to amend Mexico’s Constitution to let foreign companies sign joint ventures with Pemex, Javier Trevino, a congressman on the PRI assembly’s organizing committee, said in a Feb. 21 interview.
Pena Nieto hasn’t disclosed details of his planned legislation.
Pena Nieto’s party, known as the PRI, scuttled energy and tax overhauls under former presidents Felipe Calderon and Vicente Fox, most recently thwarting a 2009 bid by Calderon to expand taxes to food and medicine which are currently exempt. Both Calderon and Fox belonged to the National Action Party, or PAN.
Parts of the PRI in 1999 resisted an attempt by President Ernesto Zedillo, who belonged to the party, to open the electricity sector to private investment, fueling speculation that opposition within the PRI would prove to be the biggest obstacle to Pena Nieto’s energy overhaul this time around.
That’s no longer the case, said Mauro Leos, a senior credit officer at Moody’s Investors Service.
After PRI leaders including national head Cesar Camacho publicly backed the bylaw changes last week, there is a “high likelihood” that the rest of its members will fall in line this weekend, Leos said in a Feb. 26 interview, calling the decision by the party leadership “credit positive” for Mexico’s Baa1 rating.
“This might be a different PRI,” Leos said. “It’s significant that they were able to overcome the first obstacle, and the first obstacle was the PRI itself.”
The PRI is changing its documents to “adjust” to a new reality of being the ruling party, and to support Pena Nieto’s pledges, Martin Takagui, a PRI deputy secretary for state relations, said in an e-mailed response to questions.
“What we need to do is make the investment schemes flexible so that we don’t continue to over-exploit Pemex,” Camacho, the PRI’s leader, told reporters Feb. 26. Pemex needs to become “a world-class company,” he said.
The rule changes may still face opposition from union leaders within the party who have opposed taxing food. Senator Joel Ayala, who heads the government workers’ union, said he would never back such taxes as they would foster hunger in Mexico, according to an interview published in Reforma newspaper Feb. 14.
Some blocs in Congress, including supporters of the runner-up in last year’s presidential election, Andres Manuel Lopez Obrador, can be expected to mount opposition, said Jeffrey Weldon, a political scientist at the Mexico Autonomous Technological Institute.
A constitutional change requires approval by two-thirds of Congress and a majority of legislatures from 31 Mexican states and the capital.
Before taking office Dec. 1 , Pena Nieto was debating whether to promote a constitutional amendment on Pemex or to rely on smaller legal changes, Luis Videgaray, his then transition team leader and now finance minister, said in an Oct. 26 interview
Since then, Pena Nieto reached an agreement with all major parties to promote both oil and tax legislation this year, even though the proposals lack specifics.
The so-called “Pact for Mexico,” along with the PRI’s likely passage of rule changes this weekend, give Pena Nieto the momentum needed to push for sweeping reforms, said Duncan Wood of the Woodrow Wilson International Center for Scholars.
“It looks like Pena Nieto is going to be given the freedom of action by the party to negotiate broader rather than more restricted reforms,” Wood, director of the center’s Mexico Institute, said in a phone interview from Washington. “The fact they’ve gone through this preliminary stage is a very, very important signal for what they’re hoping to achieve.”
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