Pemex Reform Harder as PRI Misses Majority in Congress
Incoming Mexican President Enrique Pena Nieto will struggle to overhaul the state-run oil industry, a project he has called his “signature issue,” after his party won fewer seats in Congress than pre-election polls forecast.
With more than 90 percent of votes counted, Jorge Carlos Ramirez, Pena Nieto’s deputy campaign chief, estimated yesterday that the Institutional Revolutionary Party-led alliance will have about 241 lawmakers in the 500-seat lower house.
That leaves Pena Nieto dependent on the opposition to overhaul tax and labor laws, and his PRI well short of the two- thirds majority needed for constitutional changes to open up the oil industry to private investment. He must now convince much of the opposition and his own party to back a law that he says is needed to reverse seven years of declining output in the largest supplier of crude to the U.S.
“It’s not dead in the water, but it’s going to be very complicated,” Duncan Wood, a professor of international relations at the Autonomous Institute of Technology of Mexico, said in a phone interview from Mexico City. “The prospects of opening up the sector just became a lot less optimistic. It will take some very skillful negotiation.”
Pena Nieto has said he may propose a plan to allow private companies to own stakes in oilfields through joint ventures with state-owned Petroleos Mexicanos, or Pemex. That will require changes to at least one article of the constitution drawn up in 1938 when the PRI government of Lazaro Cardenas seized oil fields belonging to British and U.S. companies.
Convinced of Success
“I’m convinced we’ll achieve an accord with other political forces” on a Pemex bill, Pena Nieto said in a meeting with reporters yesterday. At a later time “we’ll decide if eventually the company will float shares on the stock exchange,” he said.
Pena Nieto has said he may present the constitutional changes after the new congress begins work on Sept. 1 and before he takes office on Dec. 1. In a November interview, he said overhauling Pemex in the mold of Brazil’s Petroleo Brasileiro SA would be the “signature” issue of his presidency.
The PRI-led coalition will get at most 249 out of 500 seats in the lower house and 61 out of 128 seats in the Senate, according to projections by polling company Consulta Mitofsky. The National Action Party, or PAN, of outgoing President Felipe Calderon will get at most 135, while the Democratic Revolution Party, which opposes any attempt to weaken Pemex’s monopoly, may garner 148, according to Mitofsky. The electoral institute says final results may not be available until this weekend.
PAN Senator Ruben Camarillo said yesterday that his party favors opening the energy industry and will support reforms that benefit the country, regardless of who proposes them.
The party will call for greater transparency and accountability in exchange for its support, Camarillo, a member of the Senate energy commission who is poised to win a seat in the lower house, said in a phone interview.
A survey of 1,000 registered voters taken June 22-24 by Mexico City-based Mitofsky had forecast that the PRI-Green Party coalition would win at least 274 seats in the lower house. The poll had a 3.1 percentage point margin of error.
“We’re going to pass those reforms the country needs,” said Javier Lozano, former labor minister and a senator-elect with PAN. “We’re going to be a truly responsible opposition,” he said in an interview with Milenio TV yesterday.
Pena Nieto may have gone some way to building consensus for the constitutional changes within his party by consulting with Pemex’s powerful oil workers’ union and other labor groups that have traditionally supported the PRI.
“Private investment in the sector is not new, and more investment means more jobs,” Pemex labor union leader and PRI Senator Carlos Romero Deschamps said in a June 19 interview.
Gerardo Sanchez, a congressman who heads the farmers’ confederation within the PRI, the nation’s largest agricultural workers’ organization, said in an interview last month that he also agrees with opening Pemex to greater private participation.
“Support from PRI factions is fundamental to pass reform,” Jorge Chabat, a political science professor at the Center for Economic Research and Teaching said in a phone interview from Mexico City. “There may be some PRI members left against the idea of opening the sector to foreign investment, but at the end of the day they will fall into line.”
Convincing every member of the PRI and PAN won’t be easy. Pemex and Mexican nationalism are inextricably tied. From school murals to speeches in Congress, Pemex has been promoted as a symbol of sovereignty and national pride in Mexico for decades.
That patriotism hasn’t translated into investment. Pemex’s production declined to 2.55 million barrels a day last year from 3.38 million in 2004, according to the Energy Ministry.
Pemex said today it failed to find crude in its 20th deepwater well, keeping the commercial success rate for exploration in waters deeper than 500 feet at zero.
Pena Nieto has said Mexico needs to revive its flagging oil industry and expand trade with the U.S. to bolster economic growth that has averaged 1.8 percent since Calderon took office, compared with 4.1 percent in Brazil. He’s also proposed boosting the economy by making it easier for companies to hire and fire workers, encouraging more businesses to enter the formal economy and increasing tax collection.
Mexico’s peso rose 0.3 percent to 13.2947 per U.S. dollar at 10:19 Mexico City time. The benchmark IPC stock index rose 1 percent to a record. The gauge has gained 9.3 percent this year, compared with a 4.5 percent gain in the MSCI Emerging Markets Index.
Analysts surveyed by Bloomberg forecast Mexico’s gross domestic product will expand 3.7 percent in 2012, outpacing growth in Brazil for a second straight year. Mexican peso bonds have returned 12.9 percent in dollar terms this year, compared with a gain of 3.7 percent for local-currency emerging-market debt, according to Bank of America Corp.
Pemex has been Mexico’s biggest seller of debt abroad this year, raising $5.8 billion, according to data compiled by Bloomberg, as it takes advantage of record-low overseas financing costs to fund investment and try to reverse output declines. Yields on Pemex’s $2.96 billion of notes due in 2021 touched a record low 3.59 percent yesterday.
Under PRI President Ernesto Zedillo, Pemex tried to sell some assets in 1995, only to pare back the plan amid opposition from members of his own party. President Vicente Fox replaced Pemex’s politician-staffed board in 2001 with businessmen, including billionaire Carlos Slim. The board was dismantled two months later amid accusations by lawmakers that it was unconstitutional.
More recently, PRI lawmakers defeated an attempt by outgoing President Felipe Calderon to open the nation’s refining and distribution projects to outside partners. Calderon, whose single six-year term ends on Dec. 1, was able to win approval for private companies to operate fields under incentive-based contracts.
The PRI’s obstruction of Calderon’s changes may weigh against their own efforts to reach a consensus now, Arturo Franco, a resident fellow at Harvard University’s Center for International Development in Cambridge, Massachusetts, said in a phone interview.
Pemex is “the golden goose of Mexico,” Franco said. “It’s almost become a legend that someone will be able to pass energy reform. I really don’t know if it will be a reality.”