Mexico: Energy reform clears final hurdle of state approval

The Centenario exploration oil rig operated by Mexican company Grupo R and working for Mexico's state-owned oil company Pemex, in the Gulf of Mexico. State and federal bodies have quickly lined up behind constitutional changes that will allow foreign investment into what has been a 75-year-old state monopoly.
(Omar Torres / AFP/Getty Images)

MEXICO CITY -- Mexico’s sweeping energy reform cleared its final legal hurdle Monday when San Luis Potosi became the 17th state legislature to give rapid-fire approval to constitutional changes that will allow foreign investment into what has been a 75-year-old state monopoly.

The ambitious energy bill, opening up Mexico’s promising but poorly performing oil and gas industry, was approved solidly in both houses of Congress last week, amid bitter opposition by leftist parties.

Because measures in the bill require changing the constitution, a majority of states also had to give their OK. That happened over the weekend and early Monday, when 17 of 31 states voted in favor of the bill, even as leftist demonstrators protested and surrounded some state legislatures in hopes of discouraging approval.


But passage was never really in doubt because most state governments are controlled by the Institutional Revolutionary Party (PRI) of President Enrique Peña Nieto, for whom overhauling state oil giant Petroleos Mexicanos (Pemex) has been a major goal of his year-old administration. Along with the PRI, the conservative National Action Party also lent crucial support.

The bill now returns to the Senate for official recognition of the states’ votes and then will be signed into law by Peña Nieto -- all formalities.

Peña Nieto, on an official visit to Turkey on Monday, praised the “responsibility and commitment” exhibited by the states. “This shows that Mexico has solid democratic institutions, capable of carrying forth major national transformations,” he said via Twitter.

The new law will call for “production-sharing” agreements that allow private firms to take a cut of the crude they find under licensing agreements and contracts. It also opens up the highly inefficient state electricity sector and is designed to make Pemex a competitive and more productive company.

Proponents argue that Mexico needs outside expertise to be able to exploit the hard-to-reach deep-water oil reserves and shale rock deposits of gas. Otherwise, with production declining and shallow-water wells drying, Mexico could become a net importer of oil by 2020, experts say.

But opponents, including the left and a large percentage of ordinary Mexicans, maintain that allowing foreign companies to drill and take away oil amounts to a sell-out of precious natural resources. A better plan would be to fight rampant corruption and waste in Pemex, they argue.