Pemex Profit-Sharing Mulled in Energy Deal, Diplomat Says

Mexican President Enrique Pena Nieto’s administration is weighing profit-sharing contracts for companies that invest in the country’s state-controlled oil industry, said Eduardo Medina Mora, the ambassador to the U.S.

Allowing profit-sharing agreements is one of “several routes that could be followed” in the energy overhaul proposal that the government is drafting to submit to Congress in the second half of the year, Medina Mora said today. Opening the industry to more private investors would require changing the constitution, he said.

Pena Nieto, who took office in December, said during the last year’s election campaign that he would make opening the oil industry to more private investment his “signature issue.” He’s pursuing tax and energy overhauls to help wean the government off oil sales that fund a third of the federal budget and restore output at state-owned Petroleos Mexicanos after Mexico’s biggest oil discovery, Cantarell, collapsed over the past decade.

“We have to provide certainty to players, to economic agents that would participate in this market,” Medina Mora said in an interview at Bloomberg’s headquarters in New York. “It would very much help to have a constitutional amendment to do that.”

Production Declines

Mexican law currently prohibits Pemex, as Petroleos Mexicanos is known, from profit-sharing agreements with other companies for exploration, extraction and refining. Pemex, which was founded after Mexico expropriated assets from U.K. and U.S. companies and changed its constitution in 1938, is looking to reverse a drop in production that reached an eighth consecutive year in 2012.

Pena Nieto’s Institutional Revolutionary Party in March voted to end its opposition to taxing food and medicine, giving the president the option to propose such a strategy in a tax initiative to raise revenue. He already signed a bill to improve education by making teachers more accountable for performance, and last year as president-elect helped pass a labor-system overhaul designed to boost productivity.

The PRI, as the party is known, also worked with major opposition parties earlier this year to approve an initiative increasing competition in telecommunications and broadcasting and strengthening government regulation of the industries.

Political Alliance

The Mexican government, which has sent its biggest legislative proposals to lawmakers through the Pact for Mexico alliance among the nation’s three biggest political parties, will also work to reach consensus on the tax-system overhaul, Medina Mora said.

“We are going to do our best to have political agreement around these topics as we have had successfully on other very difficult topics as well,” Medina Mora said. “Particular timing and details have to be agreed” among the parties, he said.

More than 6,200 people have been killed in drug-related violence in Mexico since Pena Nieto took office Dec. 1, according to Milenio, a Mexico City-based newspaper. Medina Mora said that the government’s efforts “are going to take more time and be long-term driven, because they’re based on institutional buildup,” and that the number of casualties is already dropping.

Medina Mora said that while the Mexican army will stay on the streets to help fight organized crime, a measure implemented by Pena Nieto’s predecessor, Felipe Calderon, it is a “temporary” situation.

Cartel Crackdown

Soldiers will continue to help in the crackdown on cartels “as long as it’s needed in terms of recovering the physical and therefore political space for the states to build up their own forces,” Medina Mora said. “This is the objective.”

Mexico will get $240 million this fiscal year under the Merida Initiative, a $1.6 billion assistance package to fight organized crime originally signed in 2008 by Calderon and then-U.S. President George W. Bush, Medina Mora said.

“We think the initiative is important not for the money involved; it’s the commitment around a shared problem,” he said.

Before becoming U.S. ambassador, Medina Mora was Mexico’s envoy to the U.K. from 2009 through 2012 and the nation’s Attorney General from 2006 to 2009 under Calderon. He also served as director general for the National Center of Investigation and Security, or CISEN, the Mexican civil intelligence agency, according the Mexican Embassy website.

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