The Mexican oil industry may welcome foreign investors for the first time in 70 years if the country’s new president, Enrique Peña Nieto, manages to push through his plan to overhaul the sector.
Mr Peña Nieto, who will take office on December 1, has placed the opening up of the oil industry at the centre of his presidency. The sector has been closed to any kind of foreign co-operation since its nationalisation in 1938, and the monopoly of state-run Petroleos Mexicanos (Pemex) is granted by the country’s constitution.
Nevertheless, the growing need to reform Pemex has become a pressing matter. The company’s oil production decreased in the past seven years by 26% to 2.5 million barrels a day in 2011.
“Pemex really needs foreign know-how, especially when it comes to deepwater drilling. The pressure to open up for new technologies is recognised both by the incoming president and by G-7 leaders,” said Victor Hugo Rodriguez, director of the Latin American Chapter at the Hedge Fund Association. “President Peña Nieto will have a momentum for the next 18 months, before other issues in domestic politics will occupy his attention, to conduct necessary reforms.”
Momentum notwithstanding, opening up Pemex to foreign partnerships may be a hard sell. Mr Peña Nieto's Institutional Revolutionary Party (PRI) does not have the necessary majority vote in the Mexican Chamber of Deputies. Although some senior politicians from the PRI's main rival, the National Action Party, support the liberalisation of the oil sector, the undertaking will likely be an issue of intense political haggling.
Additionally, PRI has close ties to Pemex union leaders and the company is the biggest source of tax revenues in the country.
“A complete overhaul of Pemex demands a more social-oriented plan as well as very careful political weaving and manoeuvring,” said Rodolfo Andrade, CEO of Mexicali-based economic development consultancy AP Consulting.
According to Mr Andrade, the most likely scenario is opening the company for some foreign co-operation, without full liberalisation of the industry. This change will still be welcomed by many, as it may boost Mexico’s falling volume of crossborder investments, and, as Mr Andrade said, such reform can “lay basis for a much larger one in the future”.