Mexico's main leftist party proposes path to oil reform

MEXICO CITY, June 25 Wed Jun 26, 2013 5:35am IST

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MEXICO CITY, June 25 (Reuters) - Mexico's main leftist opposition party on Tuesday presented a set of proposals to make state oil giant Pemex independent, providing a foretaste of talks likely to surround government efforts to make the company more productive.

President Enrique Pena Nieto's pledge to allow more private capital into Pemex, a symbol of Mexican self-sufficiency, is one of the most contentious issues on his legislative agenda, even though he has yet to reveal many details of his plan.

Pena Nieto hopes to pass a reform with the other main groups in Congress, including the leftist Party of the Democratic Revolution (PRD), which is resisting the president's aim to make changes to the constitution to open up the industry.

Presenting their reform model in Mexico City, PRD leaders said they saw no need to alter the constitution to revamp Pemex, whose income makes up about a third of the federal budget.

Still, PRD Chairman Jesus Zambrano said he was ready to listen to the government's ideas, urging Pena Nieto to spell out his plans for the oil company, whose output has slipped from 3.4 million barrels per day in 2004 to just over 2.5 million now.

"We have our proposal, now we want to know theirs ... There must be a public debate," Zambrano said.

The PRD argues that corruption, inefficiency, a heavy tax burden and the fact the company is under the control of the finance ministry are holding back the 75-year-old Pemex.

To end this, the PRD plan envisions cutting Pemex loose to run its own operations, and bringing down its tax burden.

Senior PRI lawmakers are keen to keep the PRD on board for a reform of the oil monopoly to try and reduce the impact of protests likely to accompany the launch of the government plan.

Core elements of the PRD plan, such as giving Pemex more independence and reducing the company's tax burden, are likely to form part of the government's own vision.

The government aims to shift some of that burden onto the public with a tax system overhaul in tandem with Pemex reform.

Some PRD officials say the party may also be willing to contemplate small tweaks to the constitution provided Mexico retains control and ownership of its oil reserves.

Advocates of constitutional change say that without it, Mexico will fail to attract the kind of investment the industry needs, and risks falling further behind countries like the United States that have ramped up output in recent years.

PROFIT SHARING

Pena Nieto's ruling Institutional Revolutionary Party (PRI) fell short of a majority in Congress when he won office last year and the president sought to strengthen his hand by forging a loose alliance with Zambrano and conservative leader Gustavo Madero to work together on economic reforms.

Oil majors are hoping Pena Nieto will deliver a far-reaching shake-up to Pemex that will open the door to them participating in lucrative exploration and production work in Mexico.

They have held out hope his plan could allow them to book crude reserves that can be used as collateral - but even the strongest PRI proponents of a business-friendly reform say such a measure is almost certain to be blocked by Congress.

Instead, government officials and senior politicians say the reform is likely to set out a framework that could allow oil majors to enter profit-sharing agreements with Pemex in exchange for the companies shouldering production and exploration risks.

Ever since the PRI created Pemex when it nationalized the oil industry in 1938, Mexico has been highly protective of its oil wealth, keeping foreign investors out of the most strategically important parts of the business.

From the moment he took office in December, Pena Nieto has had to deny accusations he plans to privatize the company, repeatedly forcing him on the defensive over a reform his government plans to present by September at the latest.

Leading leftist politicians, such as Andres Manuel Lopez Obrador, the runner-up in the last two Mexican presidential elections, have pledged to oppose the reform vigorously.

Street protests are likely to be launched against the liberalization of Pemex in the coming weeks.

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