PEMEX compromise?

Bloomberg’s Adriana Lopez Caraveo and Jens Erik Gould report on what could be a break-through compromise in the PEMEX reforms.

July 1 (Bloomberg) — Mexico’s Institutional Revolutionary Party may propose the state oil monopoly set up a separate refining company rather than give private investment a role in the country’s refineries, Senator Rogelio Rueda said.

Mexican President Felipe Calderon’s plan to allow private companies to operate oil refineries and pipelines may be unconstitutional and won’t be approved by Congress unless it’s modified, Rueda, a member of the Senate energy committee, said in an interview. Calderon needs Rueda’s party to pass his broader plan to revamp the state oil industry.

“We don’t think the initiative can pass because it has many problems, including the doubt about the constitutionality of that proposal,” Rueda said of the refining plan.

Calderon’s refining proposal is part of a bill he submitted in April that would also allow the company, known as Pemex, to hire private and foreign companies to explore for and extract oil. The Mexican government, which relies on Pemex for more than a third of its budget, is seeking ways to finance exploration to counter declines in output and reserves.

The government may be willing to allow Pemex to build two new refineries without private investment if the opposition agrees not to modify any other proposals in Calderon’s bill, Rueda said, citing discussions between his party and government officials.

Rather than allowing private investment in the industry, Mexico could issue debt or reduce domestic fuel subsidies to cover exploration costs, Rueda said. Morgan Stanley estimates Mexico will spend $24 billion on fuel subsidies this year.

Rueda’s party, known as the PRI, will announce in mid July whether it will present a separate energy initiative or propose to modify Calderon’s plan, he said.

I haven’t been closely following the Calderon administration’s newest version of Plan Puebla-Panama (the moribund Fox administration plan for cooperative development in southern Mexico and the Central American states), but the original PPP included Mexican assistance in building refineries in the region. A joint venture refinery, especially if the other partners were companies like the Brazilian or Venezuelan state oil companies, might be more politically acceptable to the Mexican congress than continuing to send oil to the Shell refinery in Deer Park, Texas for resale in Mexico.