End of Mexico 75-year oil monopoly looms with Senate accord

Politically ‘Palatable’

“Although licenses will mimic concessions, we believe they could be politically more palatable than concessions as all of the oil reserves belong to the state,” Alberto Ramos, chief Latin American economist for Goldman Sachs, said in a research report. “Licenses are akin to concessions as they allow companies to take control of oil at the well head by paying royalties and taxes to the government.”

The 295-page initiative calls for changes in articles 25, 27 and 28 of the constitution. It also sets 21 mandates to be fulfilled with secondary regulations to be drafted next year.

The bill also proposes the creation of a sovereign fund, originally proposed by PAN, that would be used to manage oil profit for long-term investment and savings.

The sovereign fund will be a public trust that will be operated by Mexico’s Central Bank, which will act as trustee, and receive all the earnings derived from contracts.

“The PRI has accepted almost all of the PAN proposals,” PAN Senator Salvador Vega said. “Many of the proposals contained in our original initiative have been included, though there are some things that could be added to advance it.”

Shale Exploration

Licenses will be used principally for shale-gas exploration, according to PAN Senator Jorge Luis Lavalle. Mexico has shale-gas resources of as much as 460 trillion cubic feet, according to data compiled by state oil company Pemex.

While Jorge Luis Preciado, the PAN’s leader in the Senate, says that licenses aren’t the same as concessions, Houston-based energy consultant George Baker said the models are very similar.

“It’s a 180-degree turn for Mexico,” Baker said in a telephone interview. “I never thought they would do that.”

The Democratic Revolution Party, the third-biggest party in both chambers, opposes the constitutional amendments.

The bill also will seek to promote alternative energy sources in Mexico through investments, said Salinas, whose party forms part of Pena Nieto’s coalition in Congress.

The congressional session ends Dec. 15. Emilio Gamboa, the Senate leader for the PRI, said last month that he expected senators would agree to extend the legislative process through the end of the year if needed to pass constitutional changes to open the energy industry.

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