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Column 122313 Wall

Monday, December 23, 2013

Mexico's Historic Energy Reform is Approved and on Track

By Allan Wall

The groundbreaking reform of Mexican energy law, which allows private investment, is now the law of the land.

The reforms amended the Mexican Constitution (Articles 25, 27 and 28) and therefore, after passage by Congress, required the approval of the majority of Mexican state legislatures.   

Mexico has 31 states plus the Federal District (Mexico City), and all state legislatures are unicameral.  Therefore, it was necessary for the reform to pass 17 legislatures.

That proved not to be a problem. Within a matter of days the majority had been reached. 

Twenty-four legislatures have approved the reform.  In some of the state legislatures, the decision was unanimous.

On both the federal and state legislative levels, the reform was approved by members of the PRI and PAN, and opposed by the PRD.

However, two PRD state legislators (Hilda Chang Valenzuela in Sonora; and Dolores Porras of Nayarit) voted for the reform, so the PRD national executive committee is now expelling them from the party!  Speaking of the Sonora legislator, a PRD functionary said that "Hilda Chang broke ranks with the PRD" and her expulsion is being carried out "so she can't continue hurting us by voting against our interests and those of the people." 

On December 18th, the Permanent Commission of the Mexican Congress issued its declaration of the constitutional reform.

On December 20th, 2013 President Enrique Peña Nieto, who had just returned that morning from a trip to Turkey, formally signed the constitutional reform. The ceremony was held in the Palacio Nacional in Mexico City. 

Constitutionally, the reform is completed. However, the next step is to draft the secondary legislation, that is, the specific laws that will govern the new petroleum policies. And that stage is important as well.

There is still much opposition to the energy reform, under the argument that the oil belongs to the people of Mexico and any involvement of private, especially foreign companies, would be taking Mexico's oil. So Mexican lawmakers need to tread carefully in this step, drafting transparent legislation that will be fair, practicable and profitable.

Of course, some factions will never be convinced. Politicians such as Andres Manuel Lopez Obrador and Cuauhtemoc Cardenas have a vested interest in opposing the reform. As the son of the late Lazaro Cardenas, the president who nationalized Mexican petroleum back in 1938, Cuauhtemoc is considered a moral leader of the left, especially on this issue.

In 1938, Cuauhtemoc's father President Lazaro Cardenas nationalized Mexico's petroleum, kicked out the foreign oil companies and founded PEMEX. This story is recounted to Mexican schoolchildren every March 18th on Oil Expropriation Day. The belief that the oil belongs to Mexico and mustn't be privatized is deeply rooted.

Ironically, a closer look at Mexican history indicates that Lazaro Cardenas himself was not as rigid on the petroleum issue as is commonly thought. In fact, Lazaro Cardenas allowed a role for private oil companies to partner with PEMEX.

In 1939, a year after the oil expropriation, Lazaro Cardenas and his administration altered Mexican law to allow private companies to sign contracts with PEMEX, in which the private company assumed the risks of exploring for oil. It was not until 1958, under President Adolfo Ruiz Cortines, that all petroleum-related activities were monopolized by the state.

So today's opponents of private investment, including Andres Manuel Lopez Obrador and Cuauhtemoc Cardenas (Lazaro's son), have it backwards. They invoke the saintly name of Lazaro Cardenas to attack a policy that was supported by Lazaro Cardenas!

If managed prudently, this new energy reform could bring great dividends for the Mexican economy. Not only could the country export more oil, but Mexican petrochemical industries could be greatly expanded. Petroleum-based products such as fertilizers, detergents, rubber, paint, dye, food preservatives and plastics could be exported, providing more needed jobs for Mexicans in Mexico.

The reform could also be advantageous for the United States. I don't mean in the sense that, as the Mexican left fears, the U.S. is going to steal Mexico's oil. I simply mean that in my view it would be better to import more oil from Mexico and purchase less from the Middle East. Hopefully this reform will make it easier to do that.

Note: On December 17th, 2013 I was interviewed on Silvio Canto, Jr.'s Canto Talk show. We discussed Mexico's energy reform. You can listen to the interview here or here.

A final note: I wish all Mexidata.info readers a Merry Christmas, or as they say in Spanish, ¡Feliz Navidad!

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Allan Wall, an educator, resided in Mexico for many years.  His website is located at http://www.allanwall.info/.

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