* Constitutional reform likely tough sell in divided
Congress
* Energy reform seeks to open Pemex to private investment
By David Alire Garcia and Adriana Barrera
MEXICO CITY, Nov 8 (Reuters) – Mexico’s incoming government
will send a wide-reaching energy reform bill to Congress in the
first half of 2013, but it is braced for the prospect of
accepting a watered-down version that would likely deter
investment by oil majors.
President-elect Enrique Pena Nieto wants to shake up the
sector by opening up state oil monopoly Pemex to more
private investment, hoping it will help boost production.
But as a feisty debate in Congress over a labor reform bill
has shown, Pena Nieto may struggle in a divided Congress to
secure a constitutional reform needed to forge ahead with the
deep changes he wants to make.
Changing the constitution, which is necessary to allow
foreign companies to take a stake in the country’s ample
hydrocarbon reserves and for Pemex to enter into joint ventures,
requires a two-thirds majority vote in Congress.
Sen. David Penchyna, leader of the energy committee in the
Mexican Senate and a member of Pena Nieto’s Institutional
Revolutionary Party, or PRI, has hedged his bets.
“Right now, over there in that drawer I can take out,
without exaggerating, six different proposed models, some with
constitutional reforms, some without,” Penchyna, a senator from
Mexico’s eastern Hidalgo state and former national PRI
spokesman, said in an interview this week.
“Does a constitutional framework give greater certainty?
Yes,” he added. “But … the sector is so attractive and
profitable even without constitutional changes.”
Mexico, the world’s No. 7 oil producer, nationalized its
energy industry in 1938 and it remains a powerful symbol of
national self-sufficiency.
But in recent years, the country has seen its crude output
slide by about a quarter since hitting peak production of 3.4
million barrels per day in 2004, even as Pemex has grown into
one of the world’s largest non-listed companies.
Last month, Pena Nieto repeated the call he made during his
campaign to pursue a major energy sector shake-up that boosts
the role of profit-seeking energy companies.
“It would be best to do this by constitutional reform,” Pena
Nieto said in Berlin at a meeting organized by Deutsche Bank,
Germany’s biggest bank.
While the PRI and its allies could clinch a two-thirds
majority if they were to team up with the conservative National
Action Party (PAN) of outgoing President Felipe Calderon, tough
negotiations with the PAN and expected defections from more
nationalistic PRI lawmakers could put it out of reach.
“It’s going to be very tricky for Pena Nieto to bring
everyone together within the PRI,” said Carlos Ramirez, a Mexico
analyst at the Eurasia Group in Washington.
“If they don’t propose constitutional reform, it will be a
major disappointment and Pena Nieto doesn’t want to start with a
major disappointment,” he said.
Pena Nieto will take office on Dec. 1.
Penchyna said that Mexico’s energy sector needs annual
investment of $80 billion to $100 billion to successfully tap
reserves, and that it is “simply unfeasible” for the government
to alone provide the funds.
That is in stark contrast to some $363 million in oil field
investments through 2014 that Pemex data shows private
contractors have committed.
“The oil majors won’t be coming unless there’s a
constitutional change,” said Luis Miguel Labardini, partner with
Mexico City-based energy consultancy Marcos and Associates.
“It seems what Penchyna is implying is that they will try to
go as far as they can without making changes to the
constitution,” he added.
Labardini and other analysts note that initiatives like new
contracting schemes in refining and petrochemicals could attract
a modest increase in private investment with no need to modify
the constitution.
Jeremy Martin, director of the Energy Program at the
Institute of the Americas at the University of California-San
Diego, sees trouble ahead for Pena Nieto’s team and its quest to
boost oil production by luring new private revenue streams.
“I think they’re going to feel some heat from people who had
higher expectations,” he said.
