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What Mexico’s “Pemex Reform” Really Means

Bottom Line: Mexico’s Senate on 11 December—after a 19-hour session—approved legislation to modernize the energy sector and open it up to private investment, though some of the bill’s points are still being debated due to ongoing opposition by leftist politicians.

Analysis: The Senate approved the legislation with 95 votes in favor (PRI, PAN, Partido Verde) and 28 against (PRD, PT, Movimiento Ciudadan).

The legislation will amend the Mexican Constitution and change the status of Pemex and CFE (Federal Electric Commission) from public utilities to state-owned businesses. As companies, these enterprises would have autonomy to issue contracts to meet their principal goal of providing Mexico with its long-term energy needs and turning a profit.

Under current law, Pemex is permitted to issue particular service contracts for a set payment with outside providers, an unappealing arrangement for service providers. Oil production today is 25% lower than at its peak a decade ago, and in order to prevent Mexico’s becoming a net energy importer Pemex officials estimate they need to more than double annual capital investment of $25 billion. The only way to draw billions in capital is to permit private investment in the sector.

President Enrique Peña Nieto’s PRI party set out a much more moderate plan on 12 August 2013, which limited contracts to profit-sharing without any share in oil. That proposal was ill-received by…

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