Mexican Senate committees debate revamped energy reform

MEXICO CITY Sun Dec 8, 2013 2:37pm EST

1 of 3. Mexico's President Enrique Pena Nieto addresses the audience during The Economist's Mexico Summit 2013 in Mexico City November 7, 2013.

Credit: Reuters/Tomas Bravo

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MEXICO CITY (Reuters) - Mexican Senate committees on Sunday debated an energy bill that would open up the world's 10th-biggest oil producer to private investment by allowing new types of contracts, marking the industry's most dramatic overhaul in 75 years.

The bill, announced by centrist ruling party and opposition conservative lawmakers on Saturday, would let private firms partner with ailing state oil firm Pemex PEMX.UL via profit-sharing, risk-sharing and service contracts as well as licenses in a bid to boost sagging production.

The reform, which would keep ownership of crude in state hands, is at the center of an economic reform drive that President Enrique Pena Nieto hopes will boost lagging growth in Latin America's No. 2 economy.

It is much bolder than a draft proposed by Pena Nieto's Institutional Revolutionary Party (PRI) in August, which would have offered profit-sharing contracts and was considered too tame for attracting private firms.

Members of the leftist Party of the Democratic Revolution (PRD) called the bill "national treason" while centrist ruling Institutional Revolutionary Party (PRI) lawmakers and conservative opposition figures sang its praises.

"Today we have bet that we can imagine a Pemex that can go out and compete in the world," said PRI Senator David Penchyna, who heads the energy committee.

Saturday's proposal would allow private investors to drill for and market the country's oil.

"I feel very optimistic about this," said Luis Miguel Labardini, a partner at Mexico City-based energy consultancy Marcos y Asociados, who said that the production-sharing contracts are "very important" for Mexico's vast deepwater oil reserves.

"It seems that the original PRI initiative from Pena Nieto wasn't written in stone, and that Pena Nieto was able to take into consideration the reaction of the industry."

The reform, however, stops short of full-blown concessions that oil majors had been hoping for and does not allow companies to book reserves. It does let them report projected income from agreed contracts for accounting purposes.

"Bottom line is that if implemented this should boost (foreign direct investment) and oil output over the (medium term)," David Rees, an economist with Capital Economics, said in an email.

The draft marks a major break with tradition in Mexico, where assets of foreign oil companies were expropriated in 1938 to create Pemex, which is a symbol of national pride.

Outside the Senate, hundreds of protesters beat rocks and spoons against barricades covered with graffiti assailing the energy reform, as riot police looked on.

"What are all the police doing?" asks a small child in one street art drawing. "Protecting thieves," a mother figure replies.

Lawmakers have said they expect the committees to finish reviewing the bill by Monday, at which point it would head to the full Senate and lower house for votes.

Pena Nieto hopes to pass the reform before Christmas but lacks a majority in Congress.

He needs the support of conservatives to push the bill through after the PRD, which opposes opening the oil sector, pulled out of talks.

(Reporting by Alexandra Alper, David Alire Garcia and Tomas Bravo; Additional reporting by Veronica Gomez; Editing by Simon Gardner and Eric Beech)

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