MercoPress. South Atlantic News Agency

Mexico moves to reform oil industry with private sector

Mexico's Senate approved this week changes to the country's oil sector designed to halt rapidly falling production and ensure Mexico's oil self-sufficiency in the medium term. The bill must now be considered by the Lower House.

The changes, which follow seven months of fierce debate, will give greater financial autonomy and more decision-making flexibility to Pemex, the country's state oil monopoly. The company's 11-person board of directors will also gain four independent members, potentially improving transparency and corporate governance. However, the reform places strict limits on the role of private companies, and rules out the possibility of production-sharing contracts, which are favored by the world's leading oil companies but prohibited by Mexico's constitution. The reform also bans the private sector from building and owning refineries or participating in areas of oil transportation – in contrast to the government's original proposal. Even so, Agustín Carstens, Mexico's finance minister, admitted that the reform "should, in principle, be enough" to steady the country's rapidly falling oil production. This week, Pemex reported that total production of crude in September fell almost 10% compared with 12 months before, averaging 2.8 million bpd. The dramatic fall reflects both the sharp decline of the Cantarell oil complex, which for years accounted for about two-thirds of Mexico's total production, as well as the lack of new discoveries. Besides, oil revenue accounts for about 40% of total federal-government income. Mr Carstens said that the reform would make Pemex into a more efficient company:"by making Pemex more flexible, we will get a much more effective and a much stronger company . . . it is an important step". George Baker, who runs energia.com, a Houston-based oil consultancy said that "the law itself will not ensure increased production but at least it sets in place the possibility of better decision-making in the future Mexico sends more than 1 million barrels a day to the U.S., making it the third-largest source of U.S. oil behind Canada and Saudi Arabia, so America also stands to lose if Pemex doesn't develop its reserves. Mexico nationalized the oil industry in 1938 out of anger over exploitation by US and other foreign companies, and it has long treated Pemex as part of its national identity. Foreign and private companies are barred from investing directly in Pemex.