Mexico opens oil sector to private sector investment

Image caption,
Oil revenues make up a third of Mexico's national budget

Mexico plans to open up its state run oil industry to private investment.

A source of national pride, Mexico's oil industry has been protected from private involvement for 75 years.

President Enrique Pena Nieto has proposed reforms that will encourage foreign and domestic investment in the industry.

Mexico's oil industry is dominated by the state oil firm Pemex, but it needs investment and expertise to develop new oil and gas fields.

Currently, private companies can be awarded service contracts within the oil industry.

Under the President's plan that would go much further, allowing private companies to share the risks and profits of developing new fields.

If the reforms go through, analysts say the liberalisation of the oil sector could double foreign investment in Mexico, giving the economy the biggest boost since the country joined North American Free Trade Agreement (NAFTA) twenty years ago.

Political opposition

Mexico's political leaders stressed that the reforms do not constitute privatisation, because no oil concessions will be sold off.

However, even that is a step too far for Mexico's leftist political parties, who oppose the reforms.

BBC Correspondent in Mexico, Will Grant said: "The reform won't be simple to get through congress.

"The government faces a complicated task in negotiating with all sides, including the powerful unions.

"Yet, there is a growing sense among ordinary Mexicans that Pemex is no longer fit for purpose, is an aging and out-dated institution and that root and branch reform is probably needed," he said.

Foreign investors

A large share of Pemex's profits support government spending which has hampered the company's ability to fund new projects.

The government has warned that Mexico faces becoming a net oil importer as early as 2018, if major new oil projects cannot be developed.

Foreign oil companies, including BP and Exxon Mobil, are waiting to see the details of the reforms to see exactly what investments will be allowed.

According to figures from OPEC, Mexico is the world's 10th-biggest producer of crude. Production has fallen by 25% since hitting a peak of 3.4m barrels per day in 2004.

Despite being a top exporter to the United States, Mexico still has to import nearly half of its gasoline, because of a lack of refining capacity.