Plan may offer private Pemex stake

MEXICO CITY – The cornerstone of Mexico’s economy, its state-owned Pemex oil monopoly, is crumbling.

An unnoticed gas leak at its flagship Mexico City headquarters caused an explosion that collapsed three floors and killed 37 people this year. Thieves by the thousands tap into the company’s pipelines, resulting in frequent fiery blasts and damaging leaks. Pemex has barely broken ground on its biggest investment project, a $9 billion refinery, four years after it was announced.

Worst of all, Mexico’s oil fields are drying up and Pemex lacks the equipment to explore for new reserves in deep water or to extract shale gas. Production has plunged about 25 percent over the last decade, and a country that was once a significant oil power could become a net energy importer in a few years unless new production is brought online.

Within days, President Enrique Pena Nieto is expected to propose the most sweeping changes in decades to rescue Petroleos Mexicanos. But the initiative is under ferocious attack even before it’s been made, largely because he is expected to propose loosening the government’s near-total monopoly on oil exploration and production.

The passion over oil arises from one of Mexico’s proudest moments: President Lazaro Cardenas nationalized the industry in 1938, kicking out 17 foreign oil companies that Mexicans believe had been looting the country’s wealth.

Seventy-five years later, most Mexicans still bristle at any hint of involvement by private companies, especially foreigners, even if Pemex itself is encrusted with barnacles of a powerful and bloated union, inefficiency, theft, corruption and outdated technology.

The most controversial part of Pena Nieto’s plan will likely seek to encourage private investment and technology, possibly including risk-sharing, production-sharing or concessionary agreements, which are banned by Mexico’s Constitution.

Pena Nieto repeatedly has assured Mexicans that his plan will not privatize the industry. In the most likely scenario, it would allow private firms to share in a percentage of the oil they find, or revenue from it. At present, the law limits them to straight contractual work with incentive bonuses.

“Mexico cannot delay the transformation of its energy sector any longer,” Sen. David Penchyna wrote in a recent newspaper column. “The economic premises are outdated, but the political dogma has hung on. … The world changed, but we insisted on playing the same old role.”