Analysis: Mexico to rewrite 'sacred' text in long-awaited energy reform

Thu Jul 25, 2013 1:02am EDT
 
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By Dave Graham

MEXICO CITY (Reuters) - How far Mexico goes to overhaul its oil industry this year hinges largely on a single sentence in the constitution that has stood as a bulwark against private capital for more than 50 years.

Article 27 of the constitution bans the government from granting private sector concessions for oil or gas, making their exploitation the sole preserve of the Mexican state.

But reform of state oil monopoly Pemex is a touchstone for President Enrique Pena Nieto's readiness to make tough decisions to foster economic growth, and senior officials in his party say a bill due to be presented by September will propose modifying the article in a bid to reverse declining oil output.

Changing the article is the key to opening up Mexico to foreign oil majors - but it also risks breaking a fragile political consensus Pena Nieto has built in Congress to support his economic agenda, as well as inciting mass protests.

"It's like changing the ten commandments, it's a very sacred thing," said Ewell Murphy, an expert on Mexican energy law from the University of Houston Law Center.

The clause is inextricably linked to the birth of Pemex, a company that provides a third of the federal budget, and which has become firmly ingrained in the national psyche since its creation by President Lazaro Cardenas in 1938.

Setting out his case for expropriating British and U.S. oil firms, Cardenas cited article 27 in justification, and he and successors subsequently revised a section of the law to tighten the state's exclusive control over Mexico's petroleum.

Aside from a minor addition to include nuclear energy, that sentence has been unchanged since President Adolfo Lopez Mateos made it even more explicit in 1960 after the Cuban Revolution.   Continued...

 
A fuel burner is seen at Mexico's state-run oil monopoly Pemex platform "Ku Maloob Zaap" in the Northeast Marine Region of Pemex Exploration and Production in the Bay of Campeche April 19, 2013. REUTERS/Victor Ruiz Garcia