Page last updated at 10:30 GMT, Wednesday, 29 October 2008

Mexico passes oil industry reform

Undated file photo from Pemex showing oil installations in the Gulf of Mexico
Mexico has seen oil production decline in recent years

The Mexican Congress has passed a series of energy reforms that include controversial plans to allow private investment in state oil giant Pemex.

The bill was approved despite protests by left-wing deputies who stormed the podium as debate was getting under way.

Officials say the oil industry, which funds 40% of the federal budget, must be overhauled to stem falling output.

But the reforms were watered down after months of opposition to any changes to Pemex, in state hands since 1938.

Mexico's constitution stipulates that the oil industry must remain under state control and even the suggestion of allowing more private involvement provokes a strong reaction among some sectors.

On Tuesday, around two dozen legislators occupied the speaker's podium in the Chamber of Deputies as debate on the energy reform package began, saying the reforms were an underhand way of privatising Pemex.

But despite their protest, deputies overwhelmingly backed the reforms, which passed in the Senate last week.

'Wait and see'

President Felipe Calderon, who argues that reform is crucial to tackle declining oil production, hailed the vote as a "historic achievement".

Protesters outside the Mexican Congress with a sign "No privatisation of Pemex"
Pemex is seen as a symbol of national sovereignty by some Mexicans

"With this reform we all win. Mexicans win and Mexico wins," Mr Calderon said in a televised address.

He again stressed that the oil industry would not be privatised.

Mexico was the world's sixth-biggest oil producer in 2006 but production has been declining, particularly in its offshore field, Cantarell, that has yielded some 60% of the country's oil.

Pemex officials say they badly need the technology and resources to explore for more crude oil in the deep waters of the Gulf of Mexico.

The reforms will grant Pemex more autonomy and allow it to keep more of its profits for investment in technology and exploration, while setting up oversight committees to ensure the company is more efficient and transparent.

Private contractors will be eligible for bonuses for the early completion of projects and transferring technology to Pemex.

But the package was stripped of proposals to allow private companies to invest in oil refining or to own storage and transport facilities.

"Investors will wait and see how this reform translates into actual contracts," independent energy expert David Shields told the Associated Press.

"But what we won't be able to avoid is a major drop in oil production in the short term."

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