Analysts: Mexico oil reform falls short

Analysts said Wednesday that President Felipe Calderon's energy reform bill is a good a start, but falls short of making the sweeping changes necessary to set Mexico's ailing state oil company back on track.

Calderon sent the proposal, which would allow private contractors a greater role in boosting declining oil production and building new refineries, to the Senate late Tuesday.

Independent oil expert David Shields said "there's no real vision behind it."

"It's a proposal that tries to give something to everybody, and it doesn't seem to get very far in anything," Shields said.

Calderon stressed that the bill will not privatize Petroleos Mexicanos, or Pemex. Mexico's leftist opposition has threatened massive protests if the conservative government tries to sell off the company.

Calderon, who won a disputed 2006 presidential election by a hair's breadth, said the bill will give Pemex greater freedom to contract work out to private companies, manage its own revenues and raise cash by issuing bonds that only Mexicans could buy.

"We must act now, because time, and oil, is running out on us," Calderon warned Tuesday in a nationally televised address.

Oil revenues account for about 40 percent of Mexico's federal budget, but Pemex production is declining. The bill would give Pemex more freedom to manage and reinvest its revenues in production and exploration.

Shields said the bill would reduce bureaucratic barriers to contracts with private companies, and would allow them to be paid a bonus — but not a percentage cut — for any oil they find.

Sharing oil or direct income from oil with outside companies remains barred under Mexico's constitution, but as oil analyst George Baker said, "you've got to start somewhere."

Mexico's oil industry was nationalized in 1938 and is seen as a symbol of national pride and sovereignty.

"I want to make clear that oil is and will continue to be exclusively Mexican property," Calderon said. "Pemex is not being privatized. Oil is a symbol of the nation's sovereignty."

The leftist Democratic Revolution Party has attacked any hint of privatization as a potential handover of national patrimony.

"If they take the oil away from us, there is going to be an atmosphere of farce, of frustration, and we don't want to live amid confrontation, disagreement, and conflict," said Calderon's rival in the last election, Andres Manuel Lopez Obrador, who has threatened to order thousands of followers to block highways and airports to protest any proposal that even hints at privatization.

Calderon said the bill also would allow Pemex — which now depends on U.S. refineries to convert much of its crude into gasoline — to hire specialized firms to build and operate new refineries for Mexico.

The bill also would enable Pemex to issue "Citizen Bonds" that Mexicans could buy and get a chance to share in Pemex's income.

Production is plunging at Mexico's biggest-yielding oil field, the Cantarell deposits in the Gulf of Mexico. But Pemex lacks the expertise and equipment needed to explore and drill in these deep-water reserves, particularly in the Gulf, where 50 percent of its potential reserves lie.

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Associated Press writer Mark Stevenson contributed from Mexico City.