Mexican president pitches law that could suspend oil permits

MEXICO CITY (Reuters) - Mexican President Andres Manuel Lopez Obrador sent a bill to Congress on Friday that could enable the government to suspend permits in the oil industry, as part of a drive to bolster state control of energy at the expense of private firms.

FILE PHOTO: Mexico's President Andres Manuel Lopez Obrador shakes hands with a member of a fire fighting team during a visit to Pemex refinery in the city of Minatitlan, Veracruz State, Mexico April 27, 2019. Press Office Andres Manuel Lopez Obrador/Handout via REUTERS

Lopez Obrador argues previous administrations skewed the energy market in favor of business interests and were intent on carving up national oil firm Petroleos Mexicanos (Pemex) and power utility the Comision Federal de Electricidad (CFE).

His new initiative, a copy of which was seen by Reuters, set out a series of measures to strengthen state influence over the oil and gas industry and said the government should have the right to suspend permits if a threat to Mexico is perceived.

According to the draft bill, the energy ministry or the energy regulatory commission could temporarily suspend permits “when an imminent danger is foreseen for national security, energy security or for the national economy.”

The bill did not detail what constituted such circumstances.

The authority that issued the permit would then have oversight of the holder’s operations while it was under suspension, including the hiring of new personnel, it said.

A permit holder could ask for the suspension to be lifted once it showed that whatever led to the suspension had been “corrected or eradicated, or have disappeared”, unless there were also criminal or administrative offenses.

The bill could have implications for multinational companies with operations in Mexico, including Chevron and Glencore, which entered the country’s fuel market in a broad energy sector opening under the previous administration.

Gabriela Siller, analysis director of local firm Banco Base, warned that the draft bill could have “serious consequences” for Mexico’s economy and investor confidence.

“It would completely nullify investment in the sector,” Siller said, adding that Foreign Direct Investment (FDI) could fall at least 5% as a result.

Lopez Obrador is attempting to make Mexico energy independent, and said this month his administration would limit oil production to 2 million barrels per day.

He has tried to cast the previous government’s opening of the energy market as an illustration of chronic political corruption, and has used the subject to fire up his base ahead of mid-term legislative elections on June 6.

Lopez Obrador this month pushed through a change in the electricity law that gave the CFE precedence over private sector players in crucial aspects of the power market.

He is pressing private power companies to negotiate with the government in the hope that he can secure better terms and savings for the state from existing contracts.

His shake-up of the market has upset business groups and many of Mexico’s top trade partners, who are concerned the government is not respecting investments.

Reporting by Adrianna Barrera; additional reporting by Miguel Gutierrez; writing by Cassandra Garrison; Editing Dave Graham, Simon Cameron-Moore & Shri Navaratnam