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

Mexico’s seven-decade state energy monopoly is poised to end after senators from the nation’s two biggest political parties agreed to allow output sharing contracts and licenses for outside producers.

The lawmakers began debating joint legislation yesterday to allow private companies from Exxon Mobil Corp. to Chevron Corp. to develop fields in the largest unexplored crude area after the Arctic Circle as state-owned Petroleos Mexicanos seeks to reverse eight years of falling output. The bill would allow companies to log crude reserves for accounting purposes, which may make it easier to secure project financing.

The proposal, which senators are debating in joint committees, comes after four months of political wrangling following the release of separate plans from President Enrique Pena Nieto’s ruling Institutional Revolutionary Party, or PRI, and the opposition National Action Party, known as PAN. The government estimates an energy overhaul would lift economic growth 1 percentage point by 2018 and reverse production losses.

“I see a sense of willingness to move this bill forward,” Ninfa Salinas, a Green Party senator in the energy committee, said in a telephone interview yesterday. “There’s an understanding of using this as a tool to boost growth.”

Vote Tomorrow?

Pena Nieto, the 47-year-old former governor who returned the PRI party to power a year ago, has called the oil overhaul the cornerstone of his administration. PRI Senator David Penchyna, who heads the senate energy committee, said there may be a vote on the proposal as soon as tomorrow, in an interview today with Radio Formula.

Senators from the two parties, which with political allies have the two-thirds majority needed to pass the bill in both houses, are seeking to amend the nation’s charter to allow private and foreign energy companies to pump oil in Mexico’s $95 billion-a-year industry for the first time in 75 years.

Similar to the concession model proposed by PAN, licenses would grant broader operational control than the government’s initial profit-sharing model and allow companies to manage oil directly. In production-sharing contracts, companies can register crude reserves as assets for accounting purposes, the bill says. The oil remains state property until it is pumped.

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