Mexican President Enrique Peña Nieto revealed a set of reforms to the country’s energy sector on Monday which would open Mexico’s energy sector to foreign investors and allow private firms to access profit-sharing contracts with state-run oil monopoly Pemex. The reform package will be presented to the Congress this week and—if enacted—it will mark the largest private sector opening of Mexico’s energy sector since the industry was nationalized in 1938.
Mexico is the world’s 10th-biggest producer of crude oil, and has the third largest oil reserves in Latin America after Venezuela and Brazil. For the past 75 years, the industry has been dominated by state oil firm Pemex, which supports about one third of the government’s income. As a result, the industry’s capacity to invest in new exploration projects has been limited and domestic production has dropped from nearly 3.4 million barrels per day in 2004 to 2.5 million barrels per day in 2012. If new projects cannot be developed, Mexico might become an energy importer by 2020.
The reform plan proposed this week calls to amend two key articles in the constitution that make oil, gas, petrochemicals and electricity the sole preserve of the state. Though private companies can currently be awarded service contracts within the oil industry, the reform goes further by allowing them to take part on the risks and profits of developing new fields, and offering permits in association with Pemex to refine, transport and store hydrocarbons and petrochemicals.
According to experts, the liberalization of the Mexican oil industry could double foreign investment in the country and improve growth. However, the plan has faced severe political opposition, and a survey revealed that 65 percent of Mexicans oppose private investment in the sector. Peña Nieto has stressed that “Pemex is neither being sold nor privatized,” and the industry will remain under government control. Though able to appease some of the critics, this has raised concerns among investors as the bill does not allow for production-sharing concessions—a scheme that is possible in Colombia and Brazil.
Watch an interview with COA Vice President Eric Farnsworth on the significance of the reforms for the Mexican economy.