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Mexican Government Presses Ahead With Controversial Oil Market Reform

The Mexican government is moving ahead with a comprehensive revamp of the country’s energy market aimed to virtually undo all the reforms implemented by the previous government and re-establish state-owned companies as the dominant players in the field.

“We are going to push for a constitutional reform that will allow us to repair the grave damage that privatization has caused to the public sector and the popular economy,” President Andres Manuel Lopez Obrador said this week, as quoted by BNAmericas.

As part of these efforts to reverse energy reforms by the previous government, the lower house of the Mexican parliament earlier this year passed a controversial piece of legislation that would remove a stipulation from an earlier law that requires the state energy market regulator CRE to prioritize fuel sales from private companies as a way of leveling their playing field with Pemex.

At the same time, the Lopez Obrador government has granted billions in tax relief to the state company, including $3.6 billion for this year alone. Additional support measures have included a reduction in Pemex’s profit-sharing obligations.

Yet, some of the government’s legislative attempts to strengthen state-owned energy companies such as Pemex have been blocked by courts on the grounds that they are unconstitutional. In order to eliminate the threat of such blocks, an amendment of the constitution seems like the most obvious way to go.

If the amendment is passed, the new reforms will ensure, among other things, that more than half of Mexico’s power generations is under the control of state entities, according to former interior minister Olga Sanchez Cordero.

“Today we do not have a nationalization, but a constitutional regulation in which the president is proposing that 54% [of the market] be put under the state’s tutelage while the remaining 46% is open to private investment,” Sanchez Cordero said.

By Charles Kennedy for Oilprice.com

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