Mexico is sweeping away 75 years of nationalist protections and letting foreign companies back into its oil fields, after the Congress approved last night an historical bill that aims to generate as much as $20 billion in extra foreign investment a year.
In a country that celebrates “Oil Industry Nationalization Day” every March 18 since 1938, the energy package approved last night automatically becaome Mexico’s most significant and controversial economic reform since the North American Free Trade Agreement (NAFTA).
But critics to the legislation, which still needs the approval from 17 of Mexico's 31 states as it changes the country’s constitution, are warning locals will now have to up to 50% more for gas now than during monopoly times.
According to Vanguardia (in Spanish), by opening the market the Mexican government will have to end current subsidies to gasoline and diesel that have kept prices relatively even for the past years.
On the other hand, says the report, an increased competition will help bringing down cost overruns at the state-owned Petróleos Mexicanos (Pemex) “due to the inefficiencies and corruption in both, the firm and its union.”
Critics are questioning whether the country’s authorities have the competence and will to regulate private contracts for the benefit of all Mexicans, rather than just a few.
"We don't know how to regulate or supervise absolutely anything," famous Milenio newspaper columnist Carlos Puig wrote on Tuesday (in Spanish). "We don't know how to put a public transit concession in order. If we can't do it with a few taxis, how are we going to do it with Exxon, Shell or BP?"
Despite being the world's 10th biggest producer of crude oil, according to data from the US Energy Information Administration, Mexico’s output has fallen by a quarter since hitting a peak of 3.4 million barrels per day in 2004.
While oil and gas production in the US has soared thanks to shale deposits, some of which extend into Mexico, Pemex has failed to develop the resource. By passing the energy package reforms, Mexico will open its door to oil giants such as Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX) and BP (LON:BP) to develop the largest unexplored crude area after the Arctic Circle.