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Mexico Senate passes oil bill

Rival parties back measures they hope would boost output. Critics fear they could lead to privatization.

October 24, 2008|Ken Ellingwood | Ellingwood is a Times staff writer.

MEXICO CITY — The Mexican Senate on Thursday overwhelmingly approved an energy reform package designed to modernize the state-owned oil monopoly and boost declining production.

The seven measures, watered down from changes proposed by conservative President Felipe Calderon, won backing from the three main political parties in the Senate. Prospects appear good for passage in the lower house of Congress as early as next week.

The measures have drawn criticism from analysts who say they may be too limited to do Mexico much good in tapping new petroleum deposits sorely needed to bolster a shaky economy. Leftist critics, meanwhile, worry that they would open the door to privatizing a state industry long seen by many Mexicans as a source of national strength and pride.

Despite lopsided support for the bill, lawmakers had to retreat to an alternative site to vote after protesters descended on the Senate building, which was surrounded by riot police. Senators met at government offices a mile and a half away.

The protest was led by leftist firebrand Andres Manuel Lopez Obrador, who lost to Calderon in a disputed presidential election in 2006 and who opposes any effort to privatize the oil giant, Petroleos Mexicanos, or Pemex.

Lawmakers held months of hearings and worked to craft a proposal that could win support across the political spectrum, including Lopez Obrador's leftist Democratic Revolution Party, or PRD.

In many ways they succeeded. The final version was backed by Calderon's National Action Party, the once-ruling Institutional Revolutionary Party, or PRI, and senators from the PRD.

But the PRD has been badly divided for months after a bitter leadership fight early this year that pitted Lopez Obrador's camp against a more moderate faction. On Thursday, Lopez Obrador refused to go along with party moderates who had negotiated terms of the bill and endorsed it.

Lopez Obrador acknowledged that the bill would not privatize Pemex. But he summoned followers to block the Senate, saying the bill was not explicit enough in denying private contractors exclusive rights to explore Mexican territory or a share of earnings from newly tapped oil.

Mexico nationalized the oil industry in 1938 out of anger over what it saw as exploitation by American and other foreign firms, and it has long treated Pemex as a central part of its identity. Foreign and private firms are barred from investing directly in Pemex.

On Thursday, Calderon praised the compromise, saying it was the most important oil reform since nationalization.

When Calderon proposed the energy overhaul in April, the focus was on allowing alliances with private contractors to help Pemex overcome technological challenges in tapping new reserves in the deep waters of the Gulf of Mexico.

Calderon pointed to the success of state-owned energy companies elsewhere that had joined hands with private companies. He proposed opening storage and transportation operations to private firms and offered incentives for contractors that helped Mexico find new petroleum sources.

The bill was scaled back after months of Senate debate, enabling Calderon's right-wing party to strike a deal with the PRI and the PRD, the main opposition parties.

The final version puts more emphasis on streamlining Pemex by giving it more autonomy from government bureaucrats to make decisions and invest earnings. It also allows Mexicans to buy "citizen bonds" in Pemex. The oil company is Mexico's biggest taxpayer, providing about 40% of the nation's tax revenue.

Some analysts said the main accomplishment was bringing rival parties together on a politically loaded topic.

"It's not the most desirable, but it's the most politically feasible reform," said Enrique Bravo, a Latin America analyst for Eurasia Group, a New York-based risk consulting company.

"This is not a minor achievement."

A number of critics disparaged the legislation as "reform light," saying it failed to address growing alarm over declining oil output. Mexico is the world's sixth-largest petroleum producer, but reserves fell by more than a fourth from 2002 to 2007.

Many specialists say the only hope is to find new sources in the gulf. But Pemex lacks the know-how to extract from the deepest waters and probably will need outside help.

Some critics say the bill stripped incentives that might have encouraged private companies to join Mexico in exploration. It also dropped proposals for a much broader private role in refining, storage and transportation.

"This patched-together reform is not the solution for the urgent difficulties of the national oil industry," columnist Sergio Sarmiento wrote in the daily Reforma newspaper this week.

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ken.ellingwood@latimes.com

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latimes.com

/laplaza

The Times' blog on Latin America, La Plaza offers tidbits from correspondents' notebooks and local media.

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