Mexico energy reform due this week, debate over contracts

MEXICO CITY Tue Aug 6, 2013 6:38pm EDT

Mexican President Enrique Pena Nieto listens to an attendee at the annual Allen and Co. conference at the Sun Valley, Idaho Resort July 11, 2013. REUTERS/Rick Wilking

Mexican President Enrique Pena Nieto listens to an attendee at the annual Allen and Co. conference at the Sun Valley, Idaho Resort July 11, 2013.

Credit: Reuters/Rick Wilking

MEXICO CITY (Reuters) - Mexican President Enrique Pena Nieto said on Tuesday that his government will present its energy reform proposal this week, an overhaul aimed at luring more private capital to the oil, gas and electricity sectors to boost flagging output.

The energy reform will be presented to the Congress and is a key plank of a wider economic overhaul designed to boost growth in Latin America's No. 2 economy to 6 percent a year, create jobs and lower energy costs.

The government's energy reform bill, expected on Wednesday, is expected to open electricity generation to more private participation, while keeping both transmission and distribution under state control.

Lawmakers familiar with last-minute negotiations over the government's proposal say it will seek to amend the constitution to allow more private investment in the energy sector by eliminating the exclusivity currently granted to the public sector in the oil, gas and electricity sectors.

However, lawmakers were still discussing the finer details of how to design contracts and compensation for private oil companies.

Emilio Gamboa, a top lawmaker from Pena Nieto's centrist Institutional Revolutionary Party, or PRI, said last week the reform would be presented this Wednesday. But several party officials have since said it may come a day or two later.

One top lawmaker said Pena Nieto will seek to amend three articles of the constitution that together mandate state control over the energy sector. But others said it was unclear if the politically sensitive Article 27 - which explicitly prohibits concessions and has also been interpreted to ban risk-sharing contracts - would be changed.

"We are going to end up much closer to contracts than concessions," a senior lawmaker said, requesting anonymity due to the sensitivity of the negotiations.

HAGGLING OVER CONTRACTS

Lawmakers say a new contracting arrangement aimed at attracting private investment could include cash payments, a percentage of the oil produced or a stake in an oil field's underground reserves. But many oil companies would likely favor more generous concessions.

Leftist parties have railed against the idea of such concessions or contracts, calling them tantamount to privatization.

Mexico is the world's 10th-biggest producer of crude oil, according to OPEC data, yet output has fallen by a quarter since hitting peak production of 3.4 million barrels per day in 2004.

The country also is a top oil exporter to the United States but has to import nearly half of its gasoline due to a lack of domestic refining capacity.

The conservative National Action Party (PAN) last week presented its own proposal to reform Articles 25, 27 and 28 of the constitution, allow concessions and strengthen the country's energy regulatory bodies by making them autonomous.

Pena Nieto will need PAN backing to secure the required two-thirds majority in Congress to pass the bill.

The leftist Party of the Democratic Revolution (PRD) has made clear it will not support constitutional changes, and is set to issue its own, much narrower, energy reform proposal this week.

Leftist opponents outside the PRD have vowed massive street protests against any proposed constitutional changes.

(Additional reporting by Mexico City Newsroom; Editing by Simon Gardner and Dan Grebler)