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Mexico's opposition party proposes sweeping energy reform

Date: 01-Aug-13
Country: MEXICO
Author: David Alire Garcia and Adriana Barrera

Mexico's opposition conservative party proposed sweeping energy reform on Wednesday to change the constitution to allow more private investment and promote competition, while the ruling party is expected to present its own plans for an overhaul next week.

Both parties favor market-friendly policies in Latin America's No. 2 economy and are expected to join forces to push through energy reform.

"Everything indicates that the (energy reform) initiative of President Pena Nieto will arrive next week," said Senator Emilio Gamboa, leader of the ruling Institutional Revolutionary Party, or PRI, in the upper chamber of Congress.

However, lawmakers from the center-right National Action Party, or PAN, were the first to come out with a detailed bill that aims to provide the biggest private-sector opening of the state-run oil sector in decades.

The party called for changes to the constitution to give oil companies incentives to boost the nation's sliding energy output.

The leftist Party of the Democratic Revolution, or PRD, has made clear it will not support constitutional changes, which it argues are tantamount to privatization.

"We have set the bar in line with the size of the challenge in Mexico and we urge lawmakers from the PRI and PRD to approach what we can achieve with audacity," the PAN's national chairman Gustavo Madero told reporters as the bill was unveiled in the Senate.

The PAN's bill marks the opening bid in what is expected to be a heated debate over the future of the country's ample oil and gas reserves. Mexico is the world's 10th biggest producer of crude oil, according to data from the Organization of the Petroleum Exporting Countries (OPEC).

The conservative party's proposed legislation is broadly in line with the thinking of Pena Nieto's PRI, which has also called for constitutional reforms.

The PRI will need the PAN's backing in Congress to achieve the two-thirds majority to push through constitutional reform. That would bypass a political pact forged by the three main parties, which achieved consensus on a batch of economic changes earlier this year, and could complicate future reform efforts.

CONSTITUTIONAL CHANGE

The PAN's proposal would end a prohibition on oil and gas concessions and risk-sharing contracts enshrined in Article 27 of the constitution.

In place of the ban on concessions and contracts, the text of the PAN's proposed amendment says the state "should guarantee the maximum benefit of oil profits for the nation from the work of the operators who conduct exploration and production activities."

Mexico's current sole oil and gas operator is the state-run monopoly Pemex.

Overall, the PAN's proposal would reform Articles 25, 27 and 28 of the constitution. It would eliminate public-sector exclusivity over the generation, transportation and distribution of electricity, and strengthen the country's energy regulatory bodies by making them autonomous. Those details would be dealt with in so-called secondary laws.

The bill would create a new national petroleum fund to administer the country's energy riches, but still keep all oil and gas resources under public ownership.

PAN leaders emphasized that they were open to negotiating the fine print of how oil companies would be compensated under a more open, competitive energy sector.

"At the end of the day, how you pay them, whether with money or oil, is practically the same," Salvador Vega, a PAN senator, told Reuters.

"We are not closed to any kind of model. In fact, we are looking at all types of models. That is where the most important part of the debate will be ... whether we move to a kind of royalty, taxes on products or benefits."

The PAN's bill was filed with the Senate, which will formally kick off the debate on energy reform on September 1 when the new congressional session begins.

(Additional reporting by Michael O'Boyle.; Editing by Simon Gardner and Christopher Wilson)

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