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TheStreet Open House

Mexican Gov't Grants Guzzling Rights to Multinational Gas Giants

By Adriana Gomez Licon
MEXICO CITY -- A Mexico senate committee proposed Saturday to open the country's beleaguered, state-run oil sector to greater private investment.

The Senate proposal would allow the government to grant contracts for exploration and extraction of oil and gas to multinational giants such as Exxon (XOM) or Chevron (CVX), something that is currently prohibited under Mexico's constitution.

According to a draft obtained by The Associated Press, the proposal also would allow private contractors to "book reserves," or list oil reserves in their financial statements. It goes much further than the plan introduced by President Enrique Pena Nieto in August, which only allowed profit-sharing agreements but not arrangements for sharing oil.

The measures in the Senate proposal have been prohibited in the decades since 1938, when then-President Lazaro Cardenas nationalized the oil industry, a symbol that for decades that has been fiercely protected by the constitution from possible profiteering by foreign companies.

The Senate proposal would change three articles of constitution, while Pena Nieto had only proposed to change two.

The proposal still specifies that oil in the ground is the property of the Mexican state. But it also says that the changes will allow direct foreign investment "up to 100 percent in exploration and extraction activities." The constitution would continue to prohibit oil concessions, considered the most liberal kind of access by private oil companies.

The proposal was hashed out by Pena Nieto's ruling Institutional Revolutionary Party, or PRI, with the conservative opposition, the National Action Party, which wants an oil reform as open as possible to all kinds of investment and partnership possibilities.

Meanwhile, the leftist Democratic Revolutionary Party has left the three-party political coalition, Pact for Mexico, to protest any constitutional changes to open the oil sector.

The PRI has been more moderate than the PAN in its approach, given the leftist opposition that has drawn thousands in street protests.

But the mobilization so far hasn't been as great as in 2008, when former presidential candidate Andres Manuel Lopez Obrador all but killed the congressional attempt to open the oil industry to greater private investment. Lopez Obrador was sidelined by a heart attack last week, but protesters still showed up outside the Senate on Wednesday to oppose the oil reform.

Up to now, Pemex has allowed contracts that only pay a fee for services rendered.

But the constitutional safeguards now act more like a straitjacket, keeping the Pemex state oil monopoly slow, outdated and unable to attract the investment, technology and knowledge it needs to tap shale and deep-water reserves, say people inside and outside the government.

While oil production has increased substantially in the U.S. and Canada, Mexico's has fallen 25 percent since 2004, and proven reserves are down 41 percent since 2001, the Mexican Institute on Competitiveness says. The U.S. contracted 70 companies to drill 137 deep-water wells last year, while Mexico, using only Pemex, drilled six, according to Mexico's government.

Copyright 2013 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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