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Pemex Aims to Woo Gas Investment

Mexico: A plan to allow foreign companies to operate production projects faces opposition.


MEXICO CITY — Mexico unveiled its plan Wednesday to attract as much as $8 billion in foreign investment to boost production of natural gas, a fuel in which the nation faces a growing shortfall in coming years. But the investment vehicle called "multiple services contracts" faces opposition in the Mexican legislature and possibly in Mexican courts.

Mexico's constitution prohibits foreign companies from owning, developing and otherwise controlling energy resources and installations. The new service contracts are an attempt to attract foreign capital without giving up government ownership.

Whether it will succeed is unclear. Last month, President Vicente Fox's effort to give private electricity generators greater access to the nationwide power grid was struck down by the Mexican Supreme Court as unconstitutional.

Pemex, the state-owned oil company, has signed short-term contracts with firms for services such as drilling and seismic studies. The new plan would greatly expand on such contracts to allow outside companies to operate gas production projects for up to 20 years.

Fox and Pemex officials insist that the new contracts, which are to be put out to bid in November, skirt the constitutional prohibitions by assuring that Pemex retains ownership of the gas. Contractors would be paid according to how efficiently they produce gas.

Critics, including members of the minority Democratic Revolutionary Party, say the contracts should be barred because they give foreign companies effective control of production facilities as well as intimate knowledge of geological conditions.

The contracts would ease but not eliminate Mexico's looming natural gas shortfall, said Luis Ramirez Corzo, Pemex's director of exploration and production. Without the contracts and the 1 billion cubic feet of gas they would generate daily, the cost of importing gas will rise to $2 billion in 2006 from $270 million last year, he said.

Some international oil firms don't like the multiple-services- contract concept because the firms do not own the resource. They cannot book gas reserves on their balance sheets as assets, which are used by companies as collateral and by Wall Street analysts to determine stock values.

Still, Pemex officials said Wednesday that 75 major companies, including Schlumberger Ltd., ChevronTexaco Corp. and Petrobras of Brazil have expressed preliminary interest in bidding on the contracts. Dozens of firms are expected to attend a conference here today at which Pemex will lay out the details of the new contracts.

With gas consumption in Mexico racing ahead of supply, Pemex has no choice but to use foreign capital to develop new sources of the fuel if it is to avoid the steep costs associated with mounting imports.

By 2010, Mexican gas consumption will more than double from the daily average of 3.9 billion cubic feet, Ramirez Corzo said.

Pemex hopes to award half a dozen contracts giving companies the right to explore and produce gas in the potentially rich Burgos Basin in Northern Mexico.

The Fox administration maintains that Pemex has the right to go ahead with the bidding on multiple services contracts without approval in congress, where Fox's National Action Party lacks a majority.

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