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Mexico Will Open Energy Sector to Private & Foreign Investment

15 August, 2013

Mexican President Enrique Peña Nieto has proposed a plan that will open up the nation’s energy sector to foreign and private investment dollars for the first time in more than 75 years,in a big move that has the whole world watching.

“It could unleash billions of dollars of investment from oil majors,” reports the Financial Times. “His proposal is the country’s biggest overhaul since the passage of the North American Free Trade Agreement (NAFTA) in 1994.”

This sweeping economic overhaul essentially rewrites two existing constitutional amendments and will allow foreign companies to explore for both oil and natural gas throughout Mexico real estate. The plan will significantly increase Mexico’s already impressive economic growth,in part because demand for energy throughout all sectors of the nation’s economy is growing at a startling rate. By opening up the energy sector to private and foreign investment,Mexico is poised to become a major exporter of energy over the next few years.

“The liberalization of the oil sector could double foreign investment in Mexico,giving the economy the biggest boost since NAFTA,” writes the BBC. “Foreign oil companies,including BP and Exxon Mobile,are waiting to see the details of the reforms to see exactly what investments will be allowed.”

Mexico is currently the world’s 10th largest producer of crude oil,but its refining capacity could increase dramatically with an infusion of outside investment dollars.  Currently,most operations are overseen by Petroleos Mexicanos (Pemex),which is a state-owned monopoly. The president’s new plan will reportedly allow Mexico to engage in profit sharing contracts with private and/or foreign investors,instead of allowing for concessions or production sharing contracts. In addition,it will allow private firms to produce and sell electricity to consumers.

“For the U.S.,the stakes are huge,” writes Forbes. “U.S. oil companies have been waiting for decades for a chance to boost Mexican oil production,and energy reform is a key consideration in all that talk about North American energy independence we heard during the last U.S. presidential election.”

Also of note,both Standard & Poor’s (S&P) and Moody’s Investors Service have said they plan to reconsider upgrading Mexico’s rating when the energy reform is finalized. This move will help to boost energy production in Mexico while also lowering energy costs and driving economic growth.

“The Mexican bill is likely to get congressional approval,” writes the Wall Street Journal.