MercoPress. South Atlantic News Agency

Mexico to open state-run oil industry to private sector ending 75-year constitutional ban

President Peña Nieto administration challenges the country’s most ‘sacred cow’…which has seen production drop 25%

Mexican President Enrique Peña Nieto is making the most daring gamble of his 8-month-old presidency with a proposal to lift a 75 year-old ban on private companies investing in the state-run oil industry, a cornerstone of Mexico’s national pride that’s seen production plummet in recent decades.

The overhaul outlined proposes profit-sharing with private companies. That is currently prohibited by the Constitution, which would have to be changed.

The leftist Democratic Revolution Party says it won’t support constitutional changes but Peña Nieto’s ruling Institutional Revolutionary Party (PRI) and the conservative National Action Party (PAN) have enough votes combined to secure the two-thirds majority needed in the Senate to pass the reform. They could do the same with the support of a small, allied party in the lower Chamber.

The measure would then have to be approved in 17 of the country’s 32 state legislatures.

“Mexicans will remain the sole beneficiaries of the country’s oil profits” Peña Nieto said as he presented his proposed reform. “It’s time to use all of our energy resources to move forward and transform Mexico.”

Peña Nieto’s administration offered virtually no details about how it envisioned private participation in the national oil company, Pemex, instead emphasizing an accompanying measure that would allow private companies to produce and sell electricity for home and business use. He said that would lower consumer prices that are far higher than in many other countries.

Peña Nieto said private companies would be able to bid for profit-sharing contracts to explore and extract oil and apply for permits for refining and transportation.

Pushing through the reform without the left’s support comes with big political costs: polls show at least 65% of Mexicans oppose any private investment in the oil industry, which was nationalized in 1938.

When former President Felipe Calderón tried a similar overhaul in 2008, thousands marched in the streets and Democratic Revolution legislators padlocked the doors of Congress, camping out in the chambers in protest. The watered-down bill that resulted failed to solve Pemex underlying problems of inefficiency and declining production.

The proposal also threatened to split the Pact for Mexico, the de facto alliance of all three major parties that Peña Nieto is depending on to get major reforms passed. But according to the president’s supporters, doing nothing is not an option.

Mexico’s oil-fields are drying up and Pemex lacks the equipment to explore for new reserves in deep water or to extract shale gas. Production has plunged about 25% over the last decade, and a country that was once a significant oil power could become a net energy importer in a few years unless new production is brought online.

César Camacho, the national leader of Peña Nieto’s party, said over the weekend that “it isn’t much use saying that the country’s natural resources belong to Mexicans, if they can’t make use of them, because the oil is in the ground and we can’t get at it.”