Having planned to unveil his proposal for a major overhaul of the energy sector this week, President Enrique Peña Nieto announced on Wednesday that he will now wait until next week to present the bill to Congress.
“I continue to prepare the presentation of the energy reform that will stimulate national development. I’ve decided to announce it next week,” Peña Nieto wrote on Twitter.
The delay comes as political parties extend negotiations over the reforms, which will include the controversial proposal for constitutional amendments that allow foreign corporations to partner with the government-run monopoly Petroleos Mexicanos (Pemex) in oil and gas exploration and production, thus ending 75 years of near-absolute state control over the industry.
News of the proposal came just as the head of Pemex’s refinery branch had announced plans to invest in a refinery in the United States. Citing the profitable Deer Park refinery in Houston that Pemex acquired in a partnership with Shell in 1992, Miguel Tame, the director of Pemex Refinacion, said this week that investing in another refinery north of the border would bring “good results.”
The Deer Park refinery brought in 1.3 billion pesos last year, according to an official report. In contrast, Pemex Refinacion lost over 142 billion pesos in Mexico in 2012, plus another 79 billion pesos up until June 30 this year.
Another refinery in the United States could prove a more practical alternative to Pemex’s refinery in Tula, Hidalgo, which is 11 months behind schedule and is now due to cost 2.6 billion dollars more than the nine billion dollars originally envisaged.
Due to inadequate investment, Pemex lacks the capacity to refine much of the crude oil it produces. As such, Mexico loses millions every year by exporting crude oil to the United States and then importing nearly half of its gasoline at higher prices.
Although it is one of the world’s ten biggest crude oil producers and provides around one third of the federal government’s annual budget, Pemex is notoriously inefficient and production slowed to an 18-year low last month. Crude oil production fell to 2.5 million barrels a day in July – the lowest monthly output since October 1995, when it produced 1.9 million barrels a day – and Pemex is now headed toward a ninth straight year of declined output since peaking at 3.5 million barrels a day in 2004.
This continued slump in production will be viewed in some quarters as further evidence that Pemex should be opened up to private investment in order to boost both efficiency and productivity.
Exxon, Chevron and Spanish oil producer Repsol SA are among companies that have expressed interest in Mexico’s oil fields. In return for their investment, these firms could receive cash payments, a percentage of the oil produced or a stake in an oil field’s underground reserves, under the government’s soon-to-be-unveiled proposal.
Although Peña Nieto plans to maintain Pemex under state control, the idea of granting concessions to foreign energy companies is viewed by certain sectors of society as tantamount to privatization. This makes the impending legislation not only one of the most significant developments in recent Mexican history, but also one of the most polemic.
Since its foundation in 1938, when socialist President Lazaro Cardenas expelled foreign oil companies and nationalized the industry, Pemex has been a source of great pride for the Mexican people. The embodiment of Mexico’s independence from foreign intervention, it has become something of a holy cow and any perceived attempt to privatize it will be met with fierce resistance from the Mexican left.
The leftist Party of the Democratic Revolution (PRD) has made clear it will not support any constitutional changes proposed by the government, while other left-wing organizations have vowed to lead massive demonstrations in a bid to keep Pemex in state hands.
However, the Institutional Revolutionary Party (PRI) does not need the support of the PRD in order to obtain the two-thirds majority required to pass the bill in Congress – provided it can keep the conservative National Action Party (PAN) on side. Ideologically, the PAN is much closer to the PRI than the PRD on this matter and last week it presented its own aggressive proposal for constitutional reform, which would permit concessions and strengthen Mexico’s energy regulatory bodies by making them autonomous.