Mexico’s Congress is unlikely to loosen the country’s tight limitations on foreign investment in the country’s oil resources, according to a September 10, 2008 Bloomberg report.  The report said that “lawmakers this year are likely to pass only a measure making it easier for state-owned Pemex to hire outside service contractors.” 

Last week while in Mexico City, I had the opportunity to meet with an executive of the Mexican subsidiary of a major foreign oil company, who said that Mexico’s failure to open its economy to foreign investment in the petroleum sector, even on a limited basis, would continue to hinder Mexico’s economic growth.  He said that the price of gas in Mexico, which is kept low by government subsidies, was artificially low, and that the subsidies were benefiting the upper class more than the poor.

Pemex lacks the money and technology to exploit Mexico’s remaining oil resources, which are are significantly depleted.

Javier Gonzalez Garza, coordinator of the Democratic Revolutionary Party (PRD) in the Chamber of Deputies, said that the PRD and the Broad Progressive Front (FAP) would present a unified energy reform plan to compete with the plans proposed by the National Action Party (PAN) and the Institutional Revolutionary Party (PRI), according to a report in today’s El Financiero. 

Mr. Gonzalez Garza also said that the PRD and FAP were planning a national march on August 31, 2008, which will be led by leftist presidential candidate Andres Manuel Lopez Obrador, to protest the PRI and PAN energy reform plans. 

The PRI and PAN energy reform plans would, among other things, allow Pemex, the state-controlled oil monopoly, to enter into contracts with foreign investors to assist with the development of Mexican petroleum resources.

The leaders of Mexico’s three main political parties, the PRD, the PRI, and the PAN, have agreed to discuss and approve a plan for reform of Mexico’s energy laws during the next congressional session commencing on September 1, 2008, according to a report in today’s El Financiero.  The reforms will include changes the laws governing Pemex, Mexico’s state-controlled oil company.

The Spanish government said that it views President Felipe Calderón’s proposed energy law reform package “very favorably” and that it has generated “enormous interest” among Spanish businesses, as reported in today’s La Jornada. 

Spanish deputy prime minister María Teresa Fernández de la Vega is expected to make a high-level visit to Mexico next week to bolster Spanish interests in Mexico.  Spanish prime minister José Luis Rodríguez Zapatero will also arrive in Mexico on Saturday, August 9, 2008.  La Jornada reports that the main purpose of President Zapatero’s visit is threefold: (1) to sign a series of agreements with Mexico relating to security and the environment, (2) to discuss the proposed reforms to Mexican energy laws and reform of the Foreign Investment Law (a copy in English is available here), and (3) to discuss cooperation between Spain and Mexico and Spanish support for Mexican economic development.

The Foreign Policy Association’s Mexico blog, written by Alejandro Quiroz Flores, reported today that in the first of three unofficial referendums relating to reform of Mexico’s energy laws:

“More than 83% of citizens of Mexico City said no to the questions: ‘With the whole cycle of oil production under state auspices, do you agree that the private sector should play a role?’ and ‘In general, are you in agreement with the proposed energy reforms in Congress?’”

Flores believes, and MLB agrees, that the results of the first referendum “will pose a serious annoyance to the Calderón administration’s proposed reforms to keep Pemex in the black”.  The other two referendums will take place on August 10th and 24th. 

Business News Americas reported today that Pemex executives have met in Ciudad Juárez with federal, state, and city officials and industry groups to find ways to deal with the boom in gasoline and diesel demand at the border.  Mexican fuel subsidies keep prices lower in Mexico than the U.S.  Crossing the border for cheaper gas is, of course, perfectly rationale arbitrage by saavy consumers.

The PRD announced that it would not release the terms of its energy law reform plan until August, according to a report in today’s El Financiero.  It was originally anticipated that the plan would be released next Wednesday, July 30, 2008.

The left of center Democratic Revolutionary Party (Partido de la Revolucion Democratica - PRD) announced today that it will disclose its proposal for reform of Mexican energy laws on Wednesday, July 30, 2008, according to today’s El Financiero.  The PRD proposal will likely be grounded in preserving Mexico’s ownership of oil and gas resources and keeping all of the profits derived from such resources within state oil monopoly Pemex.  Unlike the competing proposal of the Institutional Revolutionary Party (Partido Revolucionario Institucional - PRI), which was discussed in a July 23, 2008 MLB post and which also gives Mexico full ownership of Mexico’s mineral resources, the PRD plan will probably disallow foreign investment in Mexican oil and gas exploration. That would be a mistake, particularly since Pemex is ill-equipped, both financially and technologically, to develop Mexico’s remaining reserves.

Pemex said yesterday in a Bloomberg report that it may drill for for oil outside of Mexico (for the first time in history) if Mexico’s Congress does not approve Pemex’s hiring of foreign partners for Mexican offshore projects.  The laws prohibiting Pemex from entering into partnerships with foreign investors do not apply outside of Mexico.  Pemex does not have the technology to drill in water deeper than 500 meters (1,640 feet), a meager depth by current standards.  According to the Bloomberg article, Pemex has received an offer from Brazil’s state-controlled oil company Petrolero Brasileiro, SA to explore the El Perdido Foldbelt of the Gulf of Mexico and Pemex jointly owns the Shell Deer Park refinery near Deer Park, Texas with Royal Dutch Shell Plc.

The Institutional Revolutionary Party (PRI) today released its new proposal for reform of Mexico’s energy laws.  As reported in El Financiero, the PRI’s plan would allow Pemex, the state-controlled oil monopoly, to enter into contracts with third parties (e.g., foreign investors) to assist with the development of Mexican petroleum resources, including offshore resources, but would not allow Pemex to grant control of any Mexican petroleum resources to such third parties.  The PRI proposal includes the drafting of new body of law called the Energy Transition Law (Ley de Transicion Energetica), which would grant Pemex greater management and operational autonomy.

Rising oil prices should have boosted profits at state oil monopoly Pemex by $3 billion over government budget estimates, but there are no "windfall profits", reported the New York Times today.  Mexican state governors and Andrés Manuel López Obrador, who lost the 2006 presidential election to Felipe Calderón, have demanded that Pemex account for the "disappearance" of the funds.  The governors are especially interested because Mexican law mandates they be allocated a percentage of Pemex’s surplus cash for state public works projects.  Obrador is interested in anything facts that can be twisted to make President Calderón look bad.   

The true source of the missing profits appears to be Mexico’s flagging oil production and rising imports of refined gasoline (which Mexico lacks capacity to refine itself), as the article appropriately intimates.  It is no secret that Pemex lacks the money and technology to exploit Mexico’s remaining oil resources, which are are significantly depleted.  President Calderón has presented a plan to Congress to allow outside (read international) contractors help Pemex search for oil.  Hopefully the Institutional Revolutionary Party (PRI), which controls the legislature, gives him the support he and Mexico need.