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President presents proposals for energy reform

August 13, 2013

President Enrique Peña Nieto proposed allowing private companies to profit-share with Pemex on Monday, but said the state-run monopoly would remain in government hands and maintain full ownership of Mexico’s oil reserves.

“This will permit the federal government to sign contracts that share profits with the private sector, when it is in the national interest,” Peña Nieto said, as he presented his plans for major energy reforms.

Allowing Pemex to partner with foreign firms and share profits would require amendments to be made to the Mexican Constitution. Peña Nieto also suggested permitting more private participation in electricity generation in an attempt to drive down prices, but made clear that the oil and electricity industries would remain under government control and that private corporations would not be granted oil reserves through concessions.

Peña Nieto said that electricity rates are currently 25 percent higher than in the United States, and that his reforms would lead to lower fuel and energy costs in Mexico. He also said that allowing foreign companies to invest in the oil industry would help boost Pemex’s flagging production from 2.5 million barrels per day to 3.5 million per day in 2025.

Experienced oil firms from abroad could also help provide the investment and expertise that Pemex needs to explore and exploit shale deposits and offshore fields, having already exhausted much of Mexico’s more readily available reserves.

If adopted, the president’s reforms would have a major impact on the Mexican economy. The Mexican Institute for Competitiveness (IMCO) think tank projects that an overhaul of the energy sector could create over 300,000 jobs and improve GDP by 1.7 percent per year.

However, many Mexicans – particularly those on the left of the political spectrum – remain wary of the government’s plans to open Pemex up to private investment. The hashtag #VendanPemex, meaning “They’re selling Pemex,” trended on Twitter when Peña Nieto presented his proposal on Monday, with thousands of social networkers voicing their opposition to any constitutional changes.

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