UPDATE 2-Mexican Senate prepares to vote on historic energy bill

Tue Dec 10, 2013 8:28pm EST

By Alexandra Alper and Dave Graham
    MEXICO CITY, Dec 10 (Reuters) - Mexico's Senate on Tuesday
debated a landmark energy overhaul bill at the center of
President Enrique Pena Nieto's economic reform drive, after the
country's two biggest political parties hammered out a draft
presented over the weekend.
    The reform, backed by the ruling Institutional Revolutionary
Party (PRI) and the opposition conservative National Action
Party (PAN), would mark the biggest strategic shift since the
world's No. 10 oil producer nationalized the sector in 1938.
    The reforms are designed to lure private oil companies to
either operate independently in Mexico, or partner with state
oil monopoly Pemex through production- and
profit-sharing, service contracts and licenses. 
    Pemex's crude production has slid by a quarter since hitting
a peak of 3.4 million barrels per day in 2004, and export
volumes have dropped by a third over the same period.
    Senate committees overseeing the bill gave it general
approval on Monday before beginning a protracted debate on
reservations raised by leftist lawmakers trying to derail it.
They then pushed the bill to the upper house.
    As the Senate began debating the bill on Tuesday afternoon
ahead of a vote, lawmakers from the leftist Party of the
Democratic Revolution (PRD), which is fighting hard to stop the
bill passing, held up signs reading "no to privatization."
    The debate is expected to extend well into the night.
    Lawmakers made some amendments to the draft bill on Tuesday,
adding a paragraph that removes union members from the board of
Pemex, a demand of the PAN, which argues that the union is a
weight around the company's neck and breeds corruption.
    The content of the bill was a positive surprise for many in
the oil industry, and the government hopes it will help stem the
decade-long slide in crude oil output.
    The energy reform is seen helping drive economic growth in
Mexico, which would underpin the peso. The currency
rallied on Monday to a 7-week high.
    Once the Senate has passed the bill, it must head to the
lower house of Congress to be voted on.
        
 
        
    CORNERSTONE
    The reform is a cornerstone of an economic program that Pena
Nieto hopes will boost long-lagging growth in Latin America's
No. 2 economy.
    It would allow private companies to operate the country's
oil fields, and though it stops short of full-blown concessions,
it goes much further than many analysts had expected.
    Lawmakers say companies will not have rights to book oil
reserves on their balance sheets but will be able to report
projected benefits from agreed contracts for accounting
purposes, which lawyers say is tantamount to the same thing.
    Other specialists say the proposal is vague on this point.
    In a section setting out how risk-sharing contracts work
internationally, the draft bill explains that production-sharing
contracts let companies book crude reserves for accounting ends.
    But "the hydrocarbons beneath the surface are and will
always be the property of the nation; in consequence, no
participant in the oil industry will be able report the reserves
of these products as assets," it states.
    The bill is a big departure from the service contracts now
on offer, in which companies are paid a fee and can recover
costs. It also goes well beyond the original proposal made by
Pena Nieto in August, which was limited to profit-sharing
contracts.
    PRD lawmakers have said they hope to call for a binding
referendum to overturn the energy bill. The lower house approved
legislation on Tuesday setting out how the government has to
carry out such referendums, but the measure must still pass the
Senate.
    "This is an element of uncertainty that could impact
investment decisions," said Alberto Ramos, an economist at
Goldman Sachs in New York.
    Polls have shown a wide range of opinion on the issue. A
survey published in June by the Mexico City-based CIDE
university showed the 65 percent of Mexicans opposed foreign
investment in the oil industry.
    Another poll by the newspaper Excelsior in August showed 63
percent backed Pena Nieto's plans to change the constitution to
allow more private investment in the energy industry.