- POSTED: 21 Dec 2013 06:20
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Mexico's President Enrique Pena Nieto signed a controversial law on Friday opening the country's oil industry to foreign investment for the first time since it was nationalized in 1938.
MEXICO CITY, Mexico: Mexico's President Enrique Pena Nieto signed a controversial law on Friday opening the country's oil industry to foreign investment for the first time since it was nationalized in 1938.
Pena Nieto approved the bill after it passed Congress and a majority of Mexican states voted to ratify it.
He called the measure "one of the most transcendent bills in the past half-century," arguing that it has the potential to radically and quickly improve Mexico's economic fortunes.
The reform aims to attract foreign investment with profit and production sharing contracts that would break a 75-year-old monopoly held by state oil company, Petroleos Mexicanos or Pemex.
Oil output has dropped from 3.4 million barrels per day in 2004 to 2.5 million today because of what the bill's supporters say is underinvestment and Mexico imports half the gasoline it consumes.
The government hopes to use foreign and local investment to reverse that trend, increase production, expand refining capacity and drill for shale gas and deep-water oil deposits.
The reforms met few obstacles in the Congress and state legislature because it had the support of the ruling Institutional Revolutionary Party and the conservative National Action Party.
But they sparked virulent protests on the left, led by the Democratic Revolution Party, which called the legislation a national betrayal.
Many in Mexico look back with pride at the expulsions of foreign companies by president Lazaro Cardenas in 1938.
The left says that rather than letting foreign companies drill its most precious national resource, the country would be better off cracking down on the rampant and costly corruption and waste at Pemex.
But even though opening the oil and gas industry to private investment is a highly sensitive issue in Mexico, backers of energy reform say it is necessary to save the state-run industry.
They point to aging refineries, lack of deep-water drilling technology and dwindling oil production.
But analysts say it will likely take years before international oil giants such as Exxon Mobil or Shell make a foray into the Mexico.
The left hopes to organize a referendum in 2015 to repeal the legislation.
The "production-sharing" agreement envisioned in the reforms will allow private firms to take a cut of the crude they find.
The law also aims to modernize the highly inefficient state electricity sector and make Pemex a more viable and competitive entity.
Supporters argue that without the technical knowhow from foreign energy firms, Mexico will probably be unable to exploit hard-to-reach deep-water oil reserves and shale rock gas deposits.
As oil production declines and shallow-water wells dry up, some experts had predicted the country could become a net importer of oil by 2020 were the measure not enacted.