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Mexico Implements Major Energy Reforms

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First Posted: Aug 08, 2014 04:31 PM EDT
Mexican Energy Reforms
Senator Manuel Bartlett, from the Labor Party (PT), center, gestures as he speaks during a session at the Mexican Congress in Mexico City, Mexico, on Wednesday, Aug. 6, 2014. Mexico has approved final rules to open up the energy industry that ends the exclusive right of Petroleos Mexicanos (Pemex) to crude production. Photographer: Susana Gonzalez/Bloomberg via Getty Images

The Mexican energy industry is seeking a new path to progress though the implementation of sweeping changes, including opening up the Mexican oil industry to private contracts. 

Mexico's Congress approved changes that will allow private oil contracts to be awarded in Mexico for the first time since 1938. 

According to BBC News, the laws, which were voted in Wednesday, will open the market to overseas oil firms. State-owned energy company Pemex will therefore lose the monopoly it has on the market, which it held since nationalization. 

The bills, which include a new hydrocarbons law, are part of larger reforms that were passed in December. 

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Mexican President Enrique Pena Nieto, who has made energy progress a top priority during his presidential tenure, expects that it will cause energy production to improve to the pre-recession levels of 2004 by 2025. 

"A more competitive and prosperous Mexico," President Nieto tweeted, in reference to the reforms. "They have laid the foundation for a new era of development and prosperity for Mexican families." 

The Mexican oil industry has seen a downturn in production because of a variety of economic and societal ills. A poor infrastructure, corruption and stubborn bureaucracy have brought Mexican oil production down from 3.6 million barrels a day in 2004 to 2.5 million in the present day. 

The changes to the industry and the effective ending of Pemex's 75-year monopoly required changes to the Mexican constitution, which was reformed last year. The reforms also authorize the private production of electricity. 

The changes are projected to bring billions in investment to Mexico, which is the ninth-largest oil producer in the world. 

Pemex, which is known officially as Petroleos Mexicanos, will now be up against global energy companies like BP, Exxon Mobile and Chevron. 

Bidders will start signing contracts in the country beginning in 2015, intending to produce, explore and refine oil. 

Before the reforms, bidders were only allowed to do business with Pemex. 

The liberalization of the Mexican economy began in the early 1980s but did not see much progress until the recent antitrust reforms broke up the oil industry. 

In July, the reform legislation broke up America Movil, the telecom company of media mogul and billionaire Carlos Slim. America Movil was the biggest telecom company in Latin America. 

The reforms also include a provision to transfer around one-third of the state oil company's pension debts to the federal government. Those against the bill said taxpayers will have to pay for the years of mismanagement in the pension fund. Yet, the majority still supported the bills, with the Senate voting 78 to 26 in favor of the energy overhaul. 

The leftist opposition to the reform said the bills will privatize Pemex, which is the country's main source of tax revenue. 

"Our dear Mexico is becoming more and more like a restaurant where foreign customers can enjoy our energy resources without limits and almost for free," said Senator Fernando Mayans Canabal of the leftist Democratic Revolution Party (PRD), according to the Taipei Times.

On Tuesday and Wednesday, Senators will debate the other supporting bills. Once they are approved, the comprehensive energy reform plans will take full effect. 

The first contracts for gas and oil development are due in 2015. 

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