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Mexico's Congress gives final nod to landmark oil reform

Mexico's Congress gave final approval Wednesday (Aug 6) to a historic energy reform that will open the state-controlled sector to foreign investment for the first time since 1938.

MEXICO CITY: Mexico's Congress gave final approval Wednesday (Aug 6) to a historic energy reform that will open the state-controlled sector to foreign investment for the first time since 1938. After a marathon debate, the Senate voted 78-26 for the package of bills that will break the monopoly that has been held by state-run energy giant Pemex since foreign companies were kicked out of Mexico 75 years ago.

The legislation, which was already approved by the lower house of Congress, now goes to President Enrique Pena Nieto's desk for his signature. The reform is the centerpiece of Pena Nieto's reform drive to breathe new life into Latin America's second biggest economy. It will allow foreign companies to sign profit-sharing contracts with Mexico as soon as next year and drill for oil and natural gas.

"Mexico can't stay as it is. Mexico must change to combat poverty and inequality, which is why we want to increase oil profits," said Senator David Penchyna of the ruling Institutional Revolutionary Party (PRI) during a heated debate. The government argues that the legislation will boost growth, create jobs and reverse declining oil production.

But the leftist opposition says the reform amounts to a damaging privatization of Pemex, the country's main source of tax revenue and a symbol of national sovereignty. "Our dear Mexico is becoming more and more like a restaurant where foreign customers can enjoy our energy resources without limits and almost for free," said Senator Fernando Mayans Canabal of the leftist Democratic Revolution Party (PRD).

PRD lawmakers brought a life-size picture of late former president Lazaro Cardenas to the Senate floor and accused the PRI of betraying the legacy of the man who nationalized the oil industry in 1938.

OIL FIRMS EYE REFORM

The constitutional reform was approved in December with the backing of Pena Nieto's centrist PRI and the conservative National Action Party (PAN). But to be enacted, the Congress needed to pass "secondary laws" that outline how contracts will be offered, among other things. Major oil companies have kept a close eye on the legislation, with US giant ExxonMobil and British rival BP leading an "energy task force" within the American Chamber of Commerce of Mexico.

The government says the reform will allow Mexico to obtain the technology to drill for shale gas over land and deep-water oil in the Gulf of Mexico. The legislation will reduce Pemex's tax burden and compensate landowners by offering them three per cent of profits earned from oil or gas extracted from their properties.

One of the most controversial measures calls for the government to absorb part of the Pemex worker union's unfunded pension liabilities, which total more than US$125 billion, or 10 per cent of the country's GDP. The company and workers would then have to renegotiate their labour contract.

The PRD said the notoriously corrupt union's accounts should be audited if Mexicans are to take care of its debts. "The Mexican people have already paid too much," said PRD Senator Dolores Padierna Luna. "Don't burden them with more debt that is of your own making."