Mexico Congress approves oil bill breaking 75-year monopoly

Mexico will end 75 years of government control of its vast oil reserves after Congress approved the nation’s most significant economic reform since the North American Free Trade Agreement.

The bill secured the required two-thirds majority with more than 350 votes in Mexico City’s lower house today after challenges to articles were rejected. Before becoming law, the proposal must be ratified by state assemblies, the majority of which are controlled by the alliance backing the reform.

The bill will change Mexico’s charter to allow companies such as Exxon Mobil Corp. and Chevron Corp. to develop the largest unexplored crude area after the Arctic Circle. Supporters say the overhaul will reverse eight years of output declines and propel Mexico into the top five crude exporting countries while opponents say it will funnel resource wealth to foreign investors.

“It’s an extraordinary moment,” Tony Garza, a former U.S. ambassador to Mexico under President George W. Bush and an adviser at law firm White & Case LLP in Mexico City, said by phone. “There’s potential to attract additional investment into shale and ultra-deep waters so that those resources can be exploited in a way that’s ultimately good for the country.”

Producers will be offered production-sharing contracts or licenses where they get to own the pumped oil and will be allowed to log crude reserves for accounting purposes. The reform could increase foreign investment by as much as $15 billion annually and boost potential economic growth by half a percentage point, JPMorgan Chase & Co. said in a Nov. 28 report.

The passage comes one year after President Enrique Pena Nieto took office and returned his Institutional Revolutionary Party, or PRI, to power after a 12-year hiatus.

Pena’s Cornerstone

The 47-year-old leader has called the oil overhaul the cornerstone of his administration, following approval of an education bill to make teachers more accountable for performance, a law to spur increased telecommunications competition and a program to jump-start bank lending.

Since joining a free-trade agreement with the U.S. and Canada in 1994, Mexico has become one of the world’s most open trading economies. Even so, many industries are still dominated by single groups, such as billionaire Carlos Slim’s America Movil SAB in mobile-phone service and Comision Federal de Electricidad, or CFE, in electricity.

In October, Congress passed a tax overhaul to reduce the government’s dependence on revenue from Petroleos Mexicanos, the state-owned producer known as Pemex. Proceeds now fund about a third of Mexico’s federal budget.

“It’s the biggest perceived opening of the Mexican economy since Nafta, there’s no question,” James Jones, the U.S. ambassador to Mexico when Nafta took effect, said in reference to the energy bill.

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