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Pena Nieto Signs Energy Overhaul Ending Mexico Oil Monopoly

Dec. 20 (Bloomberg) -- Mexican President Enrique Pena Nieto signed a bill that ends Petroleos Mexicanos’s 75-year production monopoly and will allow for companies such as Exxon Mobil Corp. and Chevron Corp. to develop crude.

The changes to the constitution proposed in the bill become law after they are published in the national gazette. The measure was passed by both houses of congress last week and by a majority of state legislatures this week.

The nation’s most significant economic reform since the North American Free Trade Agreement will allow companies to develop unexplored fields the government says will increase oil production to as much as 4 million barrels per day by 2025. Pena Nieto’s challenge next year will be to quickly implement the law by shepherding secondary legislation through congress and ensuring oil field bidding processes move swiftly and effectively, according to Citigroup Inc.’s Banamex.

“This is historical,” Sergio Luna, Banamex’s chief Mexico economist, said in a phone interview from Mexico City. “What we know of Pena Nieto after this year is that he’s an extraordinary political talent. What we want to see next year is Pena Nieto the executive. His abilities as CEO of Mexico Inc.”

Pena Nieto signed the energy bill in the courtyard of the National Palace that houses the headquarters of Mexico’s Finance Ministry. He was joined on stage by members of his cabinet, state governors and leaders of the Senate and lower house. Loudspeakers played Christmas music including “Jingle Bells” and “‘‘Silent Night’’ as a crowd of about 300 invited guests and journalists filed in for the event.

’Great Leap’

‘‘We’ve decided to overcome the myths and taboos to take a great leap into the future,” Pena Nieto said upon signing the law. “A new history begins for our country. We’ve opened the door to a better future for everyone.”

Standard and Poor’s raised Mexico’s rating to BBB+ from BBB yesterday, forecasting that the energy overhaul will attract private investment and spur growth within the next few years. Today the company lifted its rating for Pemex, as Petroleos Mexicanos is known, to BBB+ from BBB.

The yield on fixed-rate government peso bonds maturing in 2024 fell nine basis points, or 0.09 percentage point, to 6.29 percent as of 2:25 p.m. in Mexico City. The peso weakened 0.2 percent to 12.9906 per dollar.

“If this reform is as black and white in the secondary legislation as it was done at the constitutional level, this reform can be as important as NAFTA,” Victor Herrera, S&P’s Managing Director of Latin America said in a phone interview. “The depth of this reform as it was drafted and the way it’s been incorporated into the constitution and the speed in which it was approved, shows that there’s commitment to bring home one of the major reforms in the past decade.”

‘Jump-start Growth’

The overhaul could bring an additional $20 billion in foreign direct investment as soon as 2015 and further strengthen the peso as the market absorbs the news, according to Carlos Capistran, chief Mexico economist at Bank of America Corp. S&P forecasts gross domestic product growth of 3 percent next year and 3.5 percent in 2015, compared with 1.2 percent in 2013.

“This is a watershed moment,” Lisa Schineller, S&P’s lead analyst on Mexico, said yesterday in a telephone interview from New York. “This will clearly, once it goes into effect, jump-start growth.”

Pena Nieto shepherded through at least 10 constitutional amendments in his first year in office, including changes enforcing annual teacher evaluations and curbing the market power of dominant telecommunications companies, such as billionaire Carlos Slim’s America Movil SAB.

He also signed measures to encourage banks to lend more and added taxes on dog food, soda pop and high-calorie snacks in an attempt to reduce the government’s dependence on oil revenue.

To contact the reporters on this story: Adam Williams in Mexico City at awilliams111@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net; Eric Martin in Mexico City at emartin21@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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