Peña Nieto unveils his long-awaited petroleum reform plan

Mexican President Enrique Peña Nieto on Monday unveiled his long-awaited, far-reaching national petroleum strategy, which proposes a string of reforms to open the state-owned oil industry to private investment.

With a bill set to be sent to Congress, the Institutional Revolutionary Party (PRI) leader has launched a fiery battle that could mark his future as well as his place in Mexican history.

“If we carry out this reform, electricity and gas prices will drop,” the president said in a public presentation held in Mexico City.

Peña Nieto said that he will ask Congress to modify Articles 27 – the nationalization law – and 28 of the Constitution.

“Companies will have more and improved energy to help them become more competitive, grow and hire more people with better salaries,” Peña Nieto said. He emphasized that Petróleos Mexicanos (Pemex) was not up for sale nor would it be privatized, and assured the powerful STPRM union that its members’ rights will be respected.

If Peña Nieto is able to obtain the necessary changes to Mexico’s Constitution to open the energy sector to foreign investment, the reform would revolutionize Mexican society, not only in economic terms, but also because of the political and symbolic significance that Pemex has acquired over the years.

Pemex is the seventh-largest petroleum company in the world, but since 2004 its profits have dropped by 30 percent. Just in the first quarter of this year, the firm saw its earnings drop 3.4 percent compared to the same period in 2012. Included in this grim financial scenario are the 1.3 trillion pesos ($102 billion) in pension liabilities for 140,000 workers who belong to the Pemex union STPRM, a powerful labor force that has said it won’t cede any of its acquired rights.

But there has been no room for modernization in the state-owned oil firm, mainly because 67 percent of its revenue goes directly into the national treasury.

Because of the current state of affairs in Pemex, the country’s major political parties agree that intervention in Pemex is not only necessary but urgently needed. The problem centers on how to go about it.

The three major parties signed a Pact for Mexico just a day after Peña Nieto took office in early December, in which they pledged to back the government in pushing through 95 structural reforms, including changes inside the state-owned oil company.

With this pact, the president has been able to break a deadlock among Mexico’s political forces that has been in place since 1997 when the PRI for the first time lost its majority in the Chamber of Deputies. The opposition parties – National Action (PAN) and the Revolutionary Democrats (PRD) – have both pledged to support the PRI in pushing for sweeping changes in the educational and telecommunications sectors, but Peña Nieto’s proposal for the energy sector has provoked nationalistic passions. The conservative PAN members want the entire energy industry opened to private investors while the PRD is dead set against any changes in the Constitution that would release Pemex from the government’s control.

And party-line discontent has been brewing from within. Last weekend, some PRD members at their party’s national council meeting denounced that the Pact for Mexico was not a brokered agreement but instead a series of presidential mandates that lawmakers had to obey.

Meanwhile, some PAN members are upset by the way their party president Gustavo Madero signed off their future with Peña Nieto. They have called for an assembly to redraft party statutes, which could weaken Madero’s position as national leader.

Peña Nieto, who postponed last Wednesday his announcement for the reforms, needs three-fourths of Congress in order to accomplish his goal. The PAN has announced that it will side with the PRI, but the PRD has warned that if a consensus was not sought with the center-left party, it will stir up “trouble” among Mexicans. According to different surveys, up to 70 percent of Mexicans are against the constitutional modifications to open up Pemex to foreign and private investment.

PRD leaders have said they would await the text of Peña Nieto’s measure before coming up with their own initiative.

But the biggest obstacle may come from Andrés Manuel López Obrador, the twice-unsuccessful PRD presidential candidate who has split off from the PRD, and formed his own far-left group, the National Regeneration Movement (Morena), which has been gaining political ground. López Obrador insists that the solution for Pemex doesn’t center on opening the company to private investment but to rid the oil giant of corruption and bad management.

He has called a massive protest for September 8 to “demonstrate” to Peña Nieto how many people – not just his supporters – are against the initiative.

Many Mexicans take pride in Pemex and celebrate annually the March 18 anniversary when President Lázaro Cárdenas, a staunch PRI member, expropriated the oil industry from foreign firms.

Peña Nieto faces the threat that, if he fails to make any headway in his petroleum restructuring plan, he could lose political steam in trying to work out consensus for other important reforms, such as changes to the country’s tax structure and education system.