Mexico oil reform could go beyond profit-sharing contracts -lawmakers

MEXICO CITY Tue Nov 5, 2013 10:31pm EST

MEXICO CITY Nov 5 (Reuters) - Mexico could offer oil companies incentives that go beyond planned profit-sharing contracts when Congress passes the government's energy reform, two senior officials from the ruling Institutional Revolutionary Party (PRI) said on Tuesday.

President Enrique Pena Nieto put forward an energy reform in August that envisages creating profit-sharing schemes for private investors in Mexico's oil industry, which has been dominated by state oil monopoly Pemex for 75 years.

It is the cornerstone of a wide-reaching reform package he hopes will boost growth in Latin America's No. 2 economy and lift its energy industry into the modern era.

However, officials in the party say it may be necessary to show more flexibility to attract the kind of capital Mexico needs to exploit its oil and gas resources, and put a stop to a slide in crude production over the past decade.

That could involve permitting production-sharing contracts, and Marco Bernal, a PRI lawmaker who heads the energy committee in the lower house of Congress, said the party was exploring further options to ensure Mexico made the most of the reform.

"This includes all kinds of contracts. We're not closed to any of these schemes," Bernal told Reuters when asked whether the party could opt to allow production-sharing deals.

"We would prefer profit-sharing. But if there are other types that are working in the world too, one needs to adopt them and not be closed to one single scheme," he added.

Allowing profit- or production-sharing contracts is a major departure for Mexico, and Pena Nieto's plan involves changing the constitution to do so. That will require a two-thirds majority in Congress, which the PRI is hoping to achieve with the aid of the center-right National Action Party, or PAN.

The PAN is pushing for an energy reform involving full blown concessions and senior officials in the party have said they will not back Pena Nieto's reform unless it offers more.

Enrique Burgos, a PRI lawmaker who heads up the committee on constitutional points in the Senate, said, "It is feasible to find a middle ground" between the PRI's reform plan and the PAN's demands. Production-sharing contracts could be explored, he added.

The PRI proposal calls for changes to key articles of the constitution that ban certain contracts and make oil, gas, petrochemicals and electricity the sole preserve of the state, in a bid to lure investment.

Mexico's crude output has fallen by a quarter since peaking at 3.4 million barrels per day (bpd) in 2004.

But the proposed reform falls short of frameworks in oil-producing peers such as Brazil, Colombia and Norway, which allow companies to keep a share of output.

Salvador Vega, the senior PAN Senator in the upper chamber's energy committee, said the PRI had to provide oil firms with greater incentives to win his party's support.

"The reform the government presented falls short," he said. "It is not attractive for investors."

"We think the country should have many options to exploit oil. Not just licenses, not just profit-sharing, but also production-sharing."

Mexico has the biggest proven oil reserves in Latin America after Venezuela and Brazil, at nearly 14 billion barrels. It also has shale-gas resources that might be as high as 460 trillion cubic feet, according to Pemex data.

The PAN has demanded an electoral reform that aims to curb the power of the PRI, which has dominated Mexican politics for most of the past century, to back the energy bill.

However some PAN lawmakers are angry at how the government pushed through a newly approved tax reform with the help of the leftist Party of the Democratic Revolution (PRD), straining relations as the PRI now seeks to push the energy reform.

PRI Chairman Cesar Camacho, who says concessions are completely off the table, said negotiations still lay ahead.

"This isn't over until it is voted on," Camacho said. "We are talking ... but we don't see (production sharing) on the horizon."

"We haven't yet entered the closing stretch in discussions on the energy reform, because we first have to deal with political reform."

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.