Responding to what is now a mounting and deafening public argument between politicians, economists, analysts, columnists and activists, Mexican president Enrique Peña Nieto announced on twitter he was postponing his official unveiling of the PRI’s proposal for energy reform until next week. One could argue, however, that this unveiling is merely a political gesture, since most of the main points covered by the proposal have already been published by the media. Predictably enough, they have caused a flurry of responses; the PRI’s proposal represents a middle ground between the PAN and the PRD, and although it sits uneasily with opposition parties, if approached in the right way, the proposal could very well be a sensible approach to the much-needed reform in the sector.
Most of the newfound controversy has focused on one of these main points: the constitutional amendments. The strict regulation that articles 25, 27 and 28 of the Mexican constitution enforce over the financial operations of Pemex is coming into question; Peña Nieto’s proposal involves considerable changes to all of these articles. Indeed, Manlio Fabio Beltrones Rivera, leader of the PRI, confirmed that much in his speech he gave to current and former students from the United Kingdom last week, stating that constitutional amendments were key to any reform. He went on to explain that his party would reach out to the opposition to ensure the proposal were achieved, as he felt that these reforms would underpin a recovery in the growth of the national economy.
Countering Manlio Fabio’s last argument, last week Carlos Serrano, Chief Economist at BBVA Bancomer, calculated that any constitutional reform that would allow the participation of private capital in Pemex areas such as exploration or gas would only increase potential GDP growth by 0.4%. An increase of 0.4% in potential GDP growth represents in current terms MXN 56 billion pesos, equivalent to 4.7% of earnings generated by the NOC and that totaled in 2012 roughly MXN 1.184 trillion pesos, enough to finance over a third of public spending, according to data released by the SHCP (Secretaría de Hacienda y Crédito Público).
Meanwhile, the PRD has been busy releasing details of its own proposal over the past week, which involves a 5-year plan to lower the fiscal burden on the NOC from 71.5% to 62.5% and using the MXN 150 billion pesos saved to capitalize the company. Rather than opening up Pemex to private investment, the PRD is proposing to turn Pemex into a proper public company with a board of administration in which the government will have seat but not the chair, and where the leadership of the Workers’ Union will provide seats for base employees.
From an international perspective, The PRI’s promised amendments to the constitution have sparked a positive response in the financial markets, as Moody’s Investors Service moved quickly to announce that the changes are credit positive for the country. The outcome of the reforms could influence Moody’s view on the country’s stable credit outlook, which currently stands at Baa1 rating.
The President’s official unveiling of the proposal this coming week should not reveal anything that has not already been discussed in the public domain, however, the next few days do promise to be full of strong reactions, comments and criticism, as the atmosphere is charged with excitement and anticipation.