Mexico’s new parliament late last night passed a bill that would give the president more control over state oil company Pemex and the country’s power utility, CFE.
The aim of the bill, per a Bloomberg report on the news, is to make those state entities prioritize social and economic objectives over corporate profits. To that end, the bill proposed that both Pemex and CFE be reclassified from “state productive companies” to “public companies”, the report said.
After the new law comes into effect, CFE will control 54% of Mexico’s electricity supplies, with the remainder under the control of private companies. Critics, as cited by Bloomberg, argue that the bill, if the Senate passes it, would discourage investment in transmission projects, hindering Mexico’s transition to low-carbon energy.
Despite the reclassification that would give the government a greater say in Pemex operations, the new government is in favor of the company working with private companies to develop the country’s oil and gas resources.
Mexico currently produces around 1.5 million barrels of oil daily, down from a peak of 3.4 million barrels daily some 20 years ago. Underinvestment has plagued the industry for years, which was the motivation for the Pena Nieto administration’s reforms that invited foreign players into the local industry.
When outgoing president Andres Manuel Lopez Obrador came into power, he did away with the reform, launching reviews of existing contracts with foreign entities on allegations of corruption. As a result, Pemex has failed to increase oil production as planned by the government. In August, the latest month with available data, production dipped below 1.5 million barrels.
Meanwhile, Pemex remains heavily indebted and reliant on government support to keep going. “Pemex’s debt, equivalent to almost 6% of GDP, remains a material contingent liability for the sovereign,” Fitch Ratings noted in June, after the Mexican elections.
By Charles Kennedy for Oilprice.com
