(Adds details on cross border developments and removal of cost
By Adriana Barrera
MEXICO CITY, April 30 Mexico will force
investors in its oil and gas industry to use a certain amount of
labor and materials from Mexican firms but will give them a
decade to comply with the rules, the government said on
Presenting legislation to flesh out a radical 2013 reform at
the core of President Enrique Pena Nieto's plan to boost
economic growth, his government said the "local content"
requirements would not kick in immediately.
Energy Minister Pedro Joaquin Coldwell said the quota, aimed
at strengthening the domestic oil and gas industry, would need
to reach an average of 25 percent by 2025.
The secondary laws unveiled on Wednesday set out rules for
implementing the reform, and are being closely watched by oil
majors such as BP Plc and Royal Dutch Shell.
The laws showed content requirements will vary on a
case-by-case basis and will be detailed when contracts are put
out to tender, all of which the government said would be public.
"They are emphasizing flexibility because they know that the
mosaic of opportunities in the country require a different
approach," said Jeremy Martin, an energy expert at the
University of California San Diego. "It seems they definitely
drew from some lessons in Brazil, where you have much higher
(content) percentages that are much more rigid."
The content requirements in Brazil are as high as 55 percent
for the development phase of the pre-salt offshore fields.
Mexico's government also said on Wednesday it would cut the
tax burden on state oil giant Pemex and guarantee it at least a
20 percent stake of business in potentially lucrative deposits
in Mexican waters and land that border the United States.
But analysts say a confirmed discovery of a transborder oil
field in the Gulf of Mexico or along the country's northern land
border is at least a decade out.
Joaquin Coldwell added that the minimum stake would not
require Pemex to operate future cross-border fields, but rather
be a partner in such developments.
Those measures and the local content rules are aimed at
ensuring the energy reform benefits Mexico's economy even as it
seeks to lure foreign investors that would compete with Pemex.
The government will also reduce its involvement in the
national electricity utility known as CFE.
"The time has come for the finance ministry to let go of the
administration of Pemex and the CFE," Finance Minister Luis
Videgaray told a news conference with Joaquin Coldwell.
Pena Nieto's energy reform passed in December ends Pemex's
75-year-old oil and gas monopoly. It aims to generate billions
of dollars worth of private investment for the industry in
Mexico, the world's 10th biggest producer of crude oil.
The secondary laws show the fiscal burden imposed on
companies by the state will vary depending on the contract.
Aside from creating thousands of new jobs, Pena Nieto hopes
the energy reform will deliver a significant boost in oil
production, which has fallen by 25 percent since peaking at
almost 3.4 million barrels per day in 2004.
The new laws would lower the fiscal burden on Pemex to less
than 65 percent on average from 79 percent, Videgaray said.
It would also eliminate production cost caps when
calculating the company's tax bill.
The current session of Congress was to end on Wednesday and
it is not formally due to reconvene until September. The
government had hoped to pass the laws in the session but
disputes with the opposition delayed them.
To speed up the process, Congress will call extra sessions
and lawmakers hope to pass the energy laws by the end of June.
However, a backlog of legislation has built up in Congress
and some officials in Pena Nieto's Institutional Revolutionary
Party, or PRI, say it might take longer than that.
The PRI, which created state oil giant Pemex in 1938 when it
expropriated the assets of foreign oil companies, wants broad
consensus over the energy laws and is counting on support from
the opposition center-right National Action Party (PAN).
The PAN, which has been riven by in-fighting amid a bitter
party leadership contest, has made its support on energy
conditional on the passing of an electoral reform that will
weaken the PRI's longstanding domination of Mexican politics.
The negotiations on electoral reform have advanced more
slowly than the PRI had hoped in the Senate and could still
affect the fate of the energy legislation.
(Additional reporting by David Alire Garcia; Writing by Dave
Graham; Editing by Kieran Murray and Chizu Nomiyama)