New era for Mexico: Congress passes energy reform bill

(Photo courtesy of Matthew Rutledge via Flickr under Creative Commons license. Terms below.)

(Photo courtesy of Matthew Rutledge via Flickr under Creative Commons license. Terms below.)

Danielle Restuccia | Voxxi

After 75 years of state control, the oil and gas market in Mexico is open for business with the passage of the energy reform bill by its congress.

Lawmakers in Mexico’s Congress passed a historic energy reform bill Thursday, after the bill first cleared the Senate on Wednesday of last week. The new energy bill opens up Mexico’s gas and oil resources to private companies, turning on its head the 75-year monopoly that state-owned Petróleos Mexicanos (Pemex) has had in the industry.

President Enrique Peña Nieto proposed the energy reform bill in August, hoping to attract foreign investment and stimulate the country’s economy, which has been sluggish of late.

From Public to Private: Key Changes

The bill still needs to be ratified by a majority of state legislatures, but politicians don’t anticipate obstacles. President Peña Nieto also needs to sign off in order to approve several changes to Mexico’s Constitution.

If and when the energy reform bill takes effect in 2014, it will open the door to private oil firms, both national and international. Pemex will relinquish control of the oil and gas industry, instead competing with private companies that establish “production-sharing” agreements with the Mexican government. Those companies can locate and produce natural gas as well as setting up gas stations, which was previously prohibited.

The current system, in which oil and gas production is state-controlled, was put into place in 1938 by then-President Lázaro Cárdenas. Opinions are split on the system’s effectiveness: state control has been called a detriment to Mexico’s economy, on the one hand, and a means of protecting the country from foreign exploitation, on the other.

Hopes for the future of oil in Mexico

Conservative parties, including the Institutional Revolutionary Party (PRI) and National Action Party (PAN) tout the energy bill as revolutionary. President Peña Nieto, of the PRI, made overhauling the energy industry one of his administration’s goals. He praised the energy reform bill as a sign of both Mexico’s democratic process and a “national transformation.”

Other political proponents have added to this view, stating that foreign investment will lift the country out of slow economic growth as well as helping them to access hard-to-reach oil resources. Pemex does not currently have the funds or knowledge to tap into all of Mexico’s oil and gas deposits.

As reported in the Wall Street Journal, the Mexican government said it hoped to increase the country’s oil output from 2.5 million to 4 million barrels a day by 2025. Given that the Gulf of Mexico is relatively untouched, in terms of oil exploration, the claim is certainly possible.

Critics of energy reform in Mexico

Leftist politicians and blue-collar workers have largely decried the energy reform bill, claiming that foreign oil companies will deprive Mexico of natural resources. Some have gone so far as to call PRI and PAN “traitors to the nation,” according to Global Voices. One legislator from the Party of Democratic Revolution (PRD) stripped down to his underwear in order to demonstrate how the energy bill would strip Mexico of its oil and gas.

Others are concerned about the indirect effects the move will have on the economy. Theoretically, a boom in foreign investment could raise the peso’s value, which would cancel out the additional revenue from exported gas and oil. The ripples from quick inflation are potentially chaotic, though some argue that Mexico would ultimately see economic benefit.

Several organizations, such as YoSoy132, are protesting the bill and asking citizens to take to the streets to show their opposition. The PRD has stated that it will hold a referendum on the energy reform bill in 2015.

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